10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2006

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No: 0-10824

OSCIENT PHARMACEUTICALS CORPORATION

(Exact name of registrant as specified in its charter)

MASSACHUSETTS	04-2297484
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification no.)
1000 WINTER STREET, SUITE 2200 WALTHAM, MASSACHUSETTS	02451
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number: (781) 398-2300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

COMMON STOCK	96,087,929 Shares
$0.10 PAR VALUE	Outstanding May 5, 2006

OSCIENT PHARMACEUTICALS CORPORATION

INDEX TO FINANCIAL INFORMATION AND OTHER INFORMATION

	Page
Part I—Financial Information (unaudited):
Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005	3
Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and March 31, 2005	4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and March 31, 2005	5
Notes to Consolidated Financial Statements	6
Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Quantitative and Qualitative Disclosures about Market Risk	30
Controls and Procedures	30
Part II—Other Information:
Legal Proceedings	30
Risk Factors	30
Exhibits	44
Signature	45
Exhibit Index	46

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PART I—FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

OSCIENT PHARMACEUTICALS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	March 31, 2006			December 31, 2005
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	52,350		$	65,618
Marketable securities (held-to-maturity)		—			2,696
Restricted cash		5,346			5,386
Interest receivable		336			461
Notes receivable		561			561
Accounts receivable		8,987			6,206
Inventories		12,909			14,187
Prepaid expenses and other current assets		3,563			4,340
Total current assets		84,052			99,455
Property and Equipment, at cost:
Manufacturing and computer equipment		4,613			4,622
Equipment and furniture		1,160			1,160
Leasehold improvements		135			135
		5,908			5,917
Less—Accumulated depreciation		4,248			4,069
		1,660			1,848
Restricted cash		6,454			6,344
Long-term notes receivable		1,599			1,739
Other assets		4,424			4,573
Intangible assets, net		64,416			65,607
Goodwill		61,529			61,529
	$	224,134		$	241,095
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	5,490		$	6,447
Accrued expenses and other current liabilities		12,795			10,163
Current portion of accrued facilities impairment charge		2,604			2,175
Accrued restructuring charge		965			1,076
Clinical trial expense accrual		1,552			1,844
Deferred revenue		233			—
Total current liabilities		23,639			21,705
Long-term liabilities:
Long-term obligations, net of current maturities		175,060			175,060
Noncurrent portion of accrued facilities impairment charge		13,188			14,029
Other long-term liabilities		2,504			2,200
Noncurrent portion of deferred revenue		78			—
Commitments
Shareholders’ Equity:
Common stock, $0.10 par value - Authorized - 174,375 shares, Issued and Outstanding - 78,083 and 77,350 in 2006 and 2005, respectively		7,808			7,735
Series B restricted common stock, $0.10 par value - Authorized - 625 shares, Issued and Outstanding - None in 2006 and 2005		—			—
Additional paid-in-capital		359,552			357,968
Accumulated deficit		(357,532	)		(337,428	)
Deferred compensation		—			(11	)
Note receivable from officer		(163	)		(163	)
Total shareholders’ equity		9,665			28,101
	$	224,134		$	241,095

The accompanying notes are an integral part of these consolidated financial statements.

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OSCIENT PHARMACEUTICALS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)

	Three Months Ended
	March 31, 2006		March 31, 2005
Revenues:
Product sales	9,246		3,912
Co-promotion	1,545		—
Biopharmaceutical/other	182		34
Total revenues	10,973		3,946
Costs and expenses(1):
Cost of product sales	2,750		2,066
Research and development	2,928		6,004
Selling and marketing	20,445		20,108
General and administrative	3,640		5,029
Total costs and expenses	29,763		33,207
Loss from operations	(18,790	)	(29,261	)
Other income (expense):
Interest income	696		870
Interest expense	(2,010	)	(2,044	)
Gain on sale of fixed assets	—		38
Income from sale of intellectual property	—		2,500
Other income	—		40
Net other income (expense)	(1,314	)	1,404
Loss from continuing operations	(20,104	)	(27,857	)
Income from discontinued operations	—		21
Net loss	(20,104	)	(27,836	)
Loss from continuing operations per common share:
Basic and diluted	(0.26	)	(0.37	)
Loss from discontinued operations per common share:
Basic and diluted	—		—
Net loss per common share:
Basic and diluted	(0.26	)	(0.37	)
Weighted average common shares outstanding:
Basic and diluted	77,618		75,906
(1) Includes non-cash stock-based compensation as follows:
Cost of product sales	12		—
Research and development	50		836
Selling and marketing	393		—
General and administrative	643		112
	1,098		948

The accompanying notes are an integral part of these consolidated financial statements.

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OSCIENT PHARMACEUTICALS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Three Months Ended
	March 31, 2006			March 31, 2005
Cash Flows from Operating Activities:
Loss from continuing operations	$	(20,104	)	$	(27,857	)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		1,379			1,330
Provision for excess and obsolete inventories		23			—
Non-cash interest expense		366			406
Gain on disposal of fixed assets		—			(38	)
Stock-based compensation		1,098			948
Changes in assets and liabilities
Interest receivable		125			642
Accounts receivable		(2,781	)		(787	)
Inventories		1,255			(2,981	)
Prepaid expenses and other current assets		777			(2,485	)
Accounts payable		(957	)		(1,568	)
Accrued expenses and other current liabilities		2,632			1,514
Clinical trial expense accrual		(292	)		1,756
Deferred revenue		311			(389	)
Accrued facilities impairment charge		(573	)		(703	)
Accrued restructuring charge		(111	)		(511	)
Other long-term liabilities		304			307
Net cash used in operating activities		(16,548	)		(30,416	)
Cash Flows from Investing Activities:
Proceeds from maturities of marketable securities		2,696			46,665
Purchases of property and equipment		—			(339	)
Proceeds from sale of property and equipment		—			135
Increase in restricted cash		(70	)		(32	)
(Increase) decrease in other assets		(56	)		14
Proceeds from notes receivable		140			—
Issuance of notes receivable		—			(1,387	)
Net cash provided by investing activities		2,710			45,056
Cash Flows from Financing Activities:
Proceeds from exercise of stock options		122			353
Proceeds from issuance of stock under the employee stock purchase plan		448			200
Payments on current maturities of long-term obligations		—			(292	)
Net cash provided by financing activities		570			261
Cash Flows from Discontinued Operations (Revised):
Operating cash flows		—			21
Total		—			21
Net (Decrease) Increase in Cash and Cash Equivalents		(13,268	)		14,922
Cash and Cash Equivalents, beginning of period		65,618			64,743
Cash and Cash Equivalents, end of period	$	52,350		$	79,665

The accompanying notes are an integral part of these consolidated financial statements.

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OSCIENT PHARMACEUTICALS CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

These consolidated financial statements have been prepared by Oscient Pharmaceuticals Corporation (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company’s management, the unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2005 which are included in the Company’s Annual Report on Form 10-K. Such Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 10, 2006.

(2) Summary of Significant Accounting Policies

The Company is a biopharmaceutical company committed to the clinical development and commercialization of important new therapeutics to serve unmet medical needs. On February 6, 2004, the Company completed a merger with GeneSoft Pharmaceuticals, Inc. (Genesoft), a privately-held pharmaceutical company based in South San Francisco, California, whereby Genesoft became the Company’s wholly owned subsidiary. The Company’s lead product is the fluoroquinolone antibiotic FACTIVE^® (gemifloxacin mesylate) tablets, indicated for the treatment of community-acquired pneumonia (CAP) of mild to moderate severity and acute bacterial exacerbations of chronic bronchitis (AECB). The Company launched FACTIVE tablets in September 2004. In May 2005, the Company began co-promoting in the United States Auxilium Pharmaceuticals Inc.’s (Auxilium) product, TESTIM^® gel, a topical 1% testosterone gel indicated for the treatment of male hypogonadism.

The Company has two product candidates currently in development for the hospital marketplace in the United States, including a novel antibiotic candidate, Ramoplanin, which is currently in clinical development for the treatment of Clostridium difficile-associated disease (CDAD), a serious hospital-acquired infection. Ramoplanin has completed Phase II clinical development, and the Company recently agreed with the FDA on a Special Protocol Assessment for its continued clinical development and is advancing the clinical program of Ramoplanin toward a Phase III trial. The Company’s other product candidate is an intravenous formulation of FACTIVE that is being studied for formulation development.

The Company’s preclinical development programs include an oral peptide deformylase (PDF) inhibitor series for the potential treatment of respiratory tract infections. The Company also has several pharmaceutical alliances focused on the development of novel therapeutics and diagnostics for chronic human diseases and certain infectious diseases. These alliances were formed in previous years based on the Company’s genomics drug discovery expertise. The Company’s business strategy has shifted away from gene discovery and partnerships of this type to focus on the development and commercialization of pharmaceutical products.

The accompanying consolidated financial statements reflect the application of certain accounting policies, as described in this note and elsewhere in the accompanying notes to the consolidated financial statements.

(a) Revenue Recognition

The Company’s principal source of revenue is the sale of FACTIVE tablets, which began shipping in the third quarter of 2004. In the second quarter of 2005, the Company began recognizing co-promotion revenue of TESTIM gel in connection with its agreement with Auxilium. Other historical sources of revenue include biopharmaceutical alliances and royalties from the divested genomic services business. In future periods, the Company expects that its revenues derived from biopharmaceutical alliances will continue to decrease, while product revenues and co-promotion revenues are expected to increase based on the anticipated increased volume of prescriptions of FACTIVE tablets and TESTIM testosterone gel.

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The Company expects demand for FACTIVE to be highest between November 1 and March 31 as the incidence of respiratory tract infections, including CAP and AECB, tend to increase during the winter months. In addition, fluctuations in the severity of the annual respiratory tract infection season may cause the Company’s product sales to vary from year to year. Due to these seasonal fluctuations in demand, the Company’s results in any particular quarter may not be indicative of the results for any other quarter or for the entire year.

Product Sales

The Company follows the provisions of Staff Accounting Bulletin No. 104, “Revenue Recognition (a replacement of SAB 101)” (SAB No. 104) and recognizes revenue from FACTIVE product sales upon delivery of product to wholesalers, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, title to product and associated risk of loss has passed to the wholesaler and collectability of the related receivable is reasonably assured. All revenues from product sales are recorded net of applicable allowances for sales returns, rebates, special promotional programs, and discounts. For arrangements where the risk of loss has not passed to wholesalers or pharmacies, the Company defers the recognition of revenue by recording deferred revenue until such time that risk of loss has passed. Also, the cost of FACTIVE associated with amounts recorded as deferred revenue is recorded in inventory until such time as risk of loss has passed.

Co-Promotion Revenue

Amounts earned under the Company’s co-promotion agreement with Auxilium from the sale of TESTIM gel, a product developed by Auxilium, is classified as co-promotion revenue in the accompanying consolidated statements of operations. Auxilium is obligated to pay the Company a co-promotion fee based on a specified percentage of the gross profit from TESTIM sales attributable to primary care physicians in the U.S. that exceeds a specified cumulative sales threshold determined on an annual basis. The specific percentage is based upon TESTIM sales levels attributable to primary care physicians and the marketing expenses incurred by the Company in connection with the promotion of TESTIM under the co-promotion agreement. Such co-promotion revenue is earned when TESTIM units are dispensed through patient prescriptions. There is no cost of goods sold associated with co-promotion revenue, and the selling and marketing expenses incurred with respect to the co-promotion arrangement are classified as selling and marketing expenses in the accompanying consolidated statements of operations.

Biopharmaceutical/Other Revenue

Prior to the merger with Genesoft in 2004, the Company pursued biopharmaceutical revenues through alliance partnerships with pharmaceutical companies and through government grants. The Company also maintained a genomics services business. The Company has now shifted its focus to the development and commercialization of pharmaceutical products. The declining revenues and associated expenses for the genomics services business have been classified as discontinued operations in the accompanying consolidated financial statements.

Biopharmaceutical revenues have consisted of government research grants and license fees, contract research, and milestone payments from alliances with pharmaceutical companies. Genomics services revenues have consisted of government sequencing grants, fees and royalties received from custom gene sequencing, and analysis services.

Other revenues consist of sublicensing arrangements related to FACTIVE. The Company recognizes revenue in accordance with SAB No. 104 and Emerging Issues Task Force Issue No. 00-21. “Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21). In accordance with EITF No. 00-21, the up-front payment related to a license agreement is recognized as revenue over the term of the Company’s obligations under the agreement.

(b) Sales Rebates, Discounts and Incentives

The Company’s FACTIVE product sales are made to pharmaceutical wholesalers for further distribution through pharmacies to the ultimate consumers of the product. When the Company delivers its product, the Company reduces the amount of gross revenue recognized from such product sales based primarily on estimates of four categories of discounts and allowances that suggest that all or part of the revenue should not be recognized at the time of the delivery—product returns, cash discounts, rebates and special promotional programs.

Product Returns

Factors that are considered in the Company’s estimate of future product returns include an analysis of the amount of product in the wholesaler and pharmacy channel, review of consumer consumption data as reported by external information

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management companies, return rates for similar competitive antibiotic products that have a similar shelf life and are sold in the same distribution channel, the remaining time to expiration of the product, and the forecast of future sales of the Company’s product. Consistent with industry practice, the Company offers contractual return rights that allow its customers to return product within six months prior to and six months subsequent to the expiration date of the Company’s product. The Company’s product has a 36-month expiration period from the date of manufacturing into a tablet. At March 31, 2006 and December 31, 2005, the Company’s product return reserve was approximately $824,000 and $720,000, respectively. This reserve is evaluated on a quarterly basis, assessing each of the factors described above, and adjusted accordingly. Based on the factors noted above, the Company believes its estimate of product returns is reasonable, and changes, if any, from this estimate would not have a material impact to the Company’s financial statements.

Cash Discounts

The Company’s standard invoice includes a contractual cash 2% discount, net 30 days terms. Based on historical experience, the Company estimates that most of its customers will deduct the 2% discount from their balance. The cash discount reserve is presented as an allowance against trade receivables in the accompanying consolidated balance sheets. As of March 31, 2006 and December 31, 2005, the balance of the cash discounts reserve was approximately $140,000 and $50,000, respectively.

Rebates

The liability for managed care rebates is calculated upon historical and current rebate redemption and utilization rates contractually submitted by each state. As of March 31, 2006 and December 31, 2005, the balance of the accrual for managed care rebates was approximately $420,000 and $381,000, respectively. Considering the estimates made by the Company, as well as estimates prepared by third party utilization reports that are necessary in evaluating the required liability balance, the Company believes its estimates are reasonable, and changes, if any, from those estimates would not be material to the financial statements. As of March 31, 2006, there have been no material changes to the Company’s estimates in the periods presented.

Special Promotional Programs

The Company has offered certain promotional incentives to date to its customers and may continue this practice in the future. Such programs include: sample cards to end consumers, certain product incentives to pharmacy customers, and other sales stocking allowances. Examples of programs utilized to date follow:

Sample Card Rebate Program

During the first quarter of 2006, the Company initiated a sample card program whereby the Company offered an incentive to patients in the form of a free full-course sample card for FACTIVE. The Company has accounted for this program in accordance with EITF No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer” (EITF No. 01-09). The Company was able to develop a reasonable and reliable estimate of the amount of expected reimbursement claims based on actual claims submitted by and processed by a third party claims processing organization. The program expired on March 31, 2006, at which point the balance of the liability for this sample card program was approximately $2,606,000.

Voucher Rebate Program

During the fourth quarter of 2005, the Company initiated a voucher rebate program whereby it offered mail-in rebates to retail consumers. The Company has accounted for this program in accordance with EITF No. 01-09. The liability the Company recorded for this voucher rebate program was based upon the historical rebate redemption rates for the similar completed program that the Company commenced in the first quarter of 2005. As of March 31, 2006 and December 31, 2005, the balance of the liability for this voucher program was approximately $23,000 and $93,000, respectively. The program will expire on April 30, 2006 and the liability will be adjusted for the actual redemption rate.

(c) Clinical Trial Expense Accrual

The Company’s clinical development trials related to FACTIVE and Ramoplanin are primarily performed by outside parties. At the end of each accounting period, the Company estimates both the total cost and time period of the trials and the percent completed as of that accounting date. The Company also adjusts these estimates when final invoices are received. For the three months ended March 31, 2006 and the year ended December 31, 2005, the Company adjusted its accrual for clinical trial expenditures to reflect its most current estimate of liabilities outstanding to outside parties.

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As a condition to the approval to sell FACTIVE tablets, the FDA has required, as a post-marketing study commitment, that the Company conduct a prospective, randomized study comparing FACTIVE tablets (5,000 patients) to an active comparator (2,500 patients) in patients with acute bacterial exacerbations of chronic bronchitis and community-acquired pneumonia of mild to moderate severity. This study will include patients of different ethnicities to gain safety information in populations not substantially represented in the existing clinical trial program. This Phase IV trial, with approval from the FDA, commenced patient enrollment in the fall of 2004 and is scheduled to be completed within three to four years of commencement. Although the Company cannot predict with certainty the remaining costs related to this study, the Company currently estimates that between $7-8 million of additional spending will be required to complete the study.

Additionally, in April of 2005, the Company completed a Phase III trial examining the potential use of FACTIVE tablets for the five-day treatment of mild to moderate community-acquired pneumonia. Based on the results of this study, in October 2005, the Company submitted a supplemental New Drug Application to the FDA for approval to promote the five-day treatment of FACTIVE tablets for this indication. In January 2006, the FDA accepted the submission of filing.

(d) Accounts Receivable

Trade accounts receivable consists of amounts due from wholesalers for the purchase of FACTIVE. Ongoing evaluations of customers are performed and collateral is generally not required. As of March 31, 2006 and December 31, 2005, the Company has not reserved any amount for bad debts related to the sale of FACTIVE. The Company continuously reviews all customer accounts to determine if an allowance for uncollectible accounts is necessary. The Company currently provides substantially all of its distributors with payment terms of up to 30 days on purchases of FACTIVE. Amounts past due from customers are determined based on contractual payment terms. Through March 31, 2006, payments have generally been made in a timely manner.

The following table represents accounts receivable (in thousands):

	As of March 31, 2006		As of December 31, 2005
Trade, net	$	7,251	$	3,170
Co-promotion		1,589		1,825
Other		147		1,211
Total	$	8,987	$	6,206

(e) Restricted Cash

The Company’s restricted cash primarily consists of amounts required to be paid for the first six semi-annual interest payments due in connection with the convertible debt offering completed in May 2004. As of March 31, 2006, the remaining three semi-annual interest payments, totaling approximately $8,019,000, which are payable on April 15^th and October 15^th of 2006 and April 15^th of 2007 are restricted. At March 31, 2006, the restricted cash balance is approximately $7,670,000 excluding accrued interest. In addition, approximately $3,697,000 of cash is restricted in connection with a letter of credit issued for the building lease at the Company’s South San Francisco, California facility and approximately $433,000 of cash is restricted in connection with a letter of credit issued for the building lease at the Company’s Waltham, Massachusetts facility. The restrictions related to the South San Francisco facility and the Waltham facility expire on February 28, 2011 and March 31, 2012, respectively.

(f) Property and Equipment

The Company records property and equipment at cost. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred. The Company depreciates its property and equipment over the estimated useful life of the assets using the straight-line method starting when the asset is placed in service. The estimated useful life for leasehold improvements is the term of the lease (which is lower than the useful life of the assets).

	Estimated Useful Life
Manufacturing and computer equipment	3-5 Years
Equipment and furniture	3-5 Years
Leasehold improvements	7 Years

Depreciation expense was approximately $188,000 and $138,000 for the three-month periods ended March 31, 2006 and 2005, respectively.

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(g) Inventories

Inventories are stated at the lower of cost or market with cost determined under the average cost method. Products are removed from inventory and recognized as cost of goods sold on an average cost basis. Inventories consist of FACTIVE raw material in powder form and work-in-process of approximately $9,770,000 and $9,770,000, and FACTIVE finished tablets of approximately $3,139,000 and $4,417,000, as of March 31, 2006 and December 31, 2005, respectively. On a quarterly basis, the Company analyzes its inventory levels, and writes down inventory and marketing samples that have become obsolete, have a cost basis in excess of its expected net realizable value or are in excess of forecast requirements to cost of product revenues and marketing expense, respectively. Expired inventory is disposed of and the related costs are written off. At March 31, 2006 and December 31, 2005, there was approximately $1,079,000 and $2,072,000, respectively, in FACTIVE sample product to be used for FACTIVE marketing programs, which is classified as an other current asset in the accompanying consolidated balance sheet.

The following table represents trade inventories (in thousands):

	As of March 31, 2006		As of December 31, 2005
Raw material	$	8,418	$	8,418
Work-in-process		1,352		1,352
Finished goods		3,139		4,417
Total	$	12,909	$	14,187

(h) Net Loss Per Share (in thousands)

Basic and diluted net loss per share was determined by dividing net loss by the weighted average shares outstanding during the period. Diluted loss per share is the same as basic loss per share for all periods presented, as the effect of the potential common stock is antidilutive. Antidilutive securities, which consist of stock options, securities sold under the Company’s employee stock purchase plan, directors’ deferred stock, convertible notes, warrants and unvested restricted stock that are not included in diluted net loss per share totaled 39,151 and 38,365 shares of the Company’s common stock (prior to the application of the treasury stock method) during the three month periods ended March 31, 2006 and 2005, respectively.

(i) Single Source Suppliers

FACTIVE

The Company currently obtains the active pharmaceutical ingredient for its commercial requirements for FACTIVE from a single source. The Company purchases the active pharmaceutical ingredient pursuant to a long-term supply agreement. The disruption or termination of the supply of the commercial requirement for FACTIVE or a significant increase in the cost of the active pharmaceutical ingredient from this source could have a material adverse effect on the Company’s business, financial position and results of operations.

TESTIM

Pursuant to the Company’s co-promotion arrangement with Auxilium, Auxilium is responsible for the manufacture and distribution of TESTIM. Auxilium relies on a single third party source for the manufacture of TESTIM as well as certain raw materials used to produce TESTIM. The disruption or termination of the supply of TESTIM by Auxilium or its third party contractors could have a material adverse effect on the Company’s business, financial position and results of operations.

(j) Concentration of Credit Risk

Statement of Financial Accounting Standards (SFAS) No. 105, “Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk,” requires disclosure of any significant off-balance-sheet and credit risk concentrations. The Company has no off-balance-sheet or credit risk concentrations such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains its cash and cash equivalents and investment balances with several unaffiliated institutions.

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The following table summarizes the number of customers that individually comprise greater than 10% of total revenues and their aggregate percentage of the Company’s total product revenues:

	Number of Significant Customers	Percentage of Total Product Revenues by Customer
		A	B
Three months ended March 31, 2006	2	36%	47%
Three months ended March 31, 2005	2	15%	68%
The following table summarizes the number of customers that individually comprise greater that 10% of total accounts receivable and their aggregate percentage of the Company’s total trade accounts receivable.
	Number of Significant Customers	Percentage of Total Trade Accounts Receivable by Customer
		A	B
As of March 31, 2006	2	47%	38%
As of December 31, 2005	2	27%	54%

To date, the Company has not written off any significant accounts.

(k) Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(l) Comprehensive Income (Loss)

The Company follows the provisions of SFAS No. 130, “Reporting Comprehensive Income” (SFAS No. 130). SFAS No. 130 requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Historically, other comprehensive income had included net loss and change in unrealized gains and losses of marketable securities. For the three month periods ended March 31, 2006 and 2005, the net loss is equal to the comprehensive loss.

(m) Reclassifications

The Company has reclassified certain prior year information to conform with the current year’s presentation. The Company has separately disclosed the operating portion of the cash flows attributable to its discontinued operations, which in prior periods was reported on a combined basis as a single amount.

(n) Segment Reporting

The Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS No. 131). SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions as to how to allocate resources and assess performance. The Company’s chief decision makers, as defined under SFAS No. 131, are the chief executive officer and chief financial officer. Prior to sale of the genomics services segment in 2003, the Company had viewed its operations and managed its business as principally two operating segments: genomics services and biopharmaceutical. In 2004, the Company exited the genomics services segment, merged with Genesoft and launched FACTIVE on September 9, 2004 and began its co-promotion of TESTIM in May 2005. As a result, the Company believes it now operates in one segment called biopharmaceutical and product sales and the financial information disclosed herein represents all of the material financial information related to the Company’s one operating segment. In addition, in the fourth quarter of 2004, the Company reclassified all periods to present the revenues and expenses associated with the genomics business as discontinued operations as the Company no longer had significant involvement in the cash flows of this business.

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All of the Company’s product revenues are generated in the United States and all assets are located in the United States. All of the Company’s product revenues are generated from customers based in the United States.

(o) Long-Lived Assets

The Company follows the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). Under SFAS No. 144, long-lived assets and identifiable intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating the undiscounted cash flows is done at the lowest possible level for which there are identifiable assets. If the aggregate undiscounted cash flows are less than the carrying value of the asset, then the resulting impairment charge to be recorded is calculated based on the amount by which the carrying amount of the asset exceeds its fair value. Any write-downs are recorded as permanent reductions in the carrying amount of the asset.

The Company also follows the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142). Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are reviewed periodically for impairment. The Company performs an annual evaluation of goodwill at the end of each fiscal year to test for impairment or more frequently if events or circumstances indicate that goodwill may be impaired. Because the Company has a single operating segment, which is its sole reporting unit, the Company performs this test by comparing the fair value of the entity with its book value, including goodwill. If the fair value exceeds the book value, goodwill is not impaired. If the book value exceeds the fair value, then the Company would calculate the potential impairment loss by comparing the implied fair value of goodwill with the book value. If the implied fair value of goodwill is less than the book value, then an impairment charge would be recorded.

As of March 31, 2006, the Company does not believe that any of its long-lived assets, goodwill, or other intangible assets are impaired.

(p) Recent Accounting Pronouncements

Accounting for Inventory Costs

On November 24, 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (SFAS No. 151). The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal year beginning after November 24, 2004. The Company applied the provisions of SFAS No. 151 starting January 1, 2006 on a prospective basis as required by SFAS 151. The application of SFAS No. 151 did not have a material effect on the Company’s financial condition or results of operations.

Accounting Changes and Error Corrections

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS No. 154). SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years after the date the statement was issued. The Company applied the provisions of SFAS No. 154 starting January 1, 2006 on a prospective basis. The application of SFAS No. 154 did not have a material effect on the Company’s financial condition or results of operations.

(3) Restructuring Plans

In the fourth quarter of 2004, the Company relocated its corporate headquarters from one facility in Waltham, Massachusetts to a different facility in Waltham, Massachusetts. The Company completed the relocation to obtain administrative space that was needed to support the launch of FACTIVE. The abandonment of the former corporate headquarters was accounted for under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Accordingly, the Company recorded a restructuring charge of approximately $4.7 million which was comprised of $2.7 million related to the remaining facility costs that will continue to be

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incurred through the lease expiration date on November 15, 2006, net of expected sublease payments and $2.0 million for the write-off of the net book value of the leasehold improvements at the abandoned facility.

The following table summarizes the restructuring activity during the three month period ended March 31, 2006 (in thousands):

	Balance at December 31, 2005		Cash Payments			Balance at March 31, 2006
Restructuring facility lease liability	$	1,076	$	(111	)	$	965

At the time of acquisition of Genesoft in 2004, management approved a plan to integrate certain Genesoft facilities into existing operations. In connection with the integration activities, the Company included in the purchase price allocation a restructuring liability of approximately $18,306,000, which includes $1,419,000 in severance-related costs and $16,887,000 in facility lease impairment costs pertaining to 68,000 square feet of leased space which expires on February 28, 2011. In the quarter ended December 31, 2004, in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” (EITF No 95-3) the Company made an adjustment to the facilities impairment estimate based on the additional cost of utilities and other related expenses of approximately $4,730,000. The adjustment was recorded as an additional cost of the acquired company. In the quarter ended December 31, 2005, in accordance with EITF No. 95-3, the Company made an adjustment to the facilities lease liability based on revisions made to estimates of future rental income related to additional subleased space of approximately $734,000. The adjustment was recorded as a reduction to goodwill.

The following table summarizes the liability activity related to the Genesoft acquisition during the three month period ended March 31, 2006 (in thousands):

	Balance at December 31, 2005		Cash Payments			Interest Accretion		Balance at March 31, 2006
Assumed facility lease liability	$	16,204	$	(573	)	$	161	$	15,792

(4) Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment”, (SFAS No. 123R) using the modified prospective method. SFAS No. 123R requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values. Under the modified prospective transition method, compensation cost recognized during the three months ended March 31, 2006 includes (1) compensation cost for all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, and (2) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated.

Stock Plans

The Company grants stock options to key employees and consultants under its 1991, 1993, 1995 and 1997 Stock Option Plans, as well as the 2001 Incentive Plan (collectively, the Option Plans). The Stock Option and Compensation Committee of the Board of Directors determines the purchase price and vesting schedule applicable to each option grant. As of March 31, 2006, there are no shares reserved for future grants under the 1991, 1993, 1995 and 1997 Plans. The 2001 Incentive Plan provides for the grant of non-qualified stock options, incentive stock options, restricted stock, stock appreciation rights, unrestricted stock, deferred stock, and cash performance awards. Generally, options granted to employees vest over a two to four year time period and options granted to non-employees vest over a one to three year time period, all of which have graded vesting. All options granted to both employees and non-employees have a contractual life of ten years from date of grant and generally, the exercise price of the stock options equals the fair market value of the Company’s common stock on the date of grant. Certain options and restricted stock awards provide for accelerated vesting if there is a change in control. As of March 31, 2006, 10,366,100 shares were authorized and 733,835 shares were available under the 2001 Incentive Plan for future issuance. In addition, under separate agreements not covered by any plan, the Company has granted certain key employees and directors of the Company an aggregate of 524,046 options to purchase common stock.

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Employee Stock Purchase Plan

The Company also has an Employee Stock Purchase Plan (ESPP), which was adopted in February 2000. Under the ESPP, eligible employees may contribute up to 15% of their earnings toward the semi-annual purchase of the Company’s common stock. The employees’ purchase price is 85% of the fair market value of the common stock at the time of grant of option or the time at which the option is deemed exercised, whichever is less. The current offering period began January 1, 2006 and is scheduled to end on June 30, 2006; therefore, January 1, 2006 is considered the grant date for the purposes of recognizing the stock-based compensation expense for this offering period. The Company projects the estimated contributions at the beginning of the period and uses the Black-Scholes-Merton option-pricing model in order to determine the estimated fair value of the stock to be issued. At the end of the offering period, the Company adjusts the estimated contributions to actual. Under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), the Company was not required to recognize stock-based compensation expense for the cost of stock options or shares issued under the Company’s ESPP. Upon adoption of SFAS 123R, the Company began recording stock-based compensation expense related to the ESPP. As of March 31, 2006, 1,500,000 shares were authorized and 415,332 shares were available for future issuance under this plan.

Prior to January 1, 2006, the Company applied the intrinsic value method under APB No. 25 and related interpretations, in accounting for its stock-based compensation plans for awards to employees, rather than the alternative fair value accounting method provided for under SFAS No. 123. Under APB No. 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is required. In accordance with EITF No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (EITF No. 96-18), the Company records compensation expense equal to the fair value of options granted to non-employees over the period of service, which is generally the vesting period. The Company generally used the straight-line method of amortization for stock-based compensation. Had compensation cost for these plans been determined consistent with SFAS No. 123R, the Company’s consolidated net loss and net loss per share would have been increased to the following pro forma amounts (in thousands, except per share amounts):

	Three Months Ended March 31, 2005
Net loss as reported	$	(27,836	)
Add: Share-based employee compensation cost, included in the determination of net loss as reported		948
Less: Total share-based compensation expense determined under the fair value method for all employee awards		(1,714	)
Pro forma net loss	$	(28,602	)
Basic and diluted net loss per share
As reported	$	(0.37	)
Pro forma	$	(0.38	)

The adoption of SFAS No. 123R increased the Company’s first quarter 2006 operating loss, net loss, and cash flows used in operating activities by $1,051,000 and basic and diluted net loss per share by $0.01. The compensation expense under SFAS No. 123R is recorded in cost of product sales, research and development expense, selling and marketing expense, and general and administrative expense based on the specific allocation of employees receiving the equity awards. Additionally, the Company eliminated the January 1, 2006 deferred compensation balance against additional paid-in capital upon adoption of SFAS No. 123R. The Company’s adoption of SFAS No. 123R did not affect operating loss, loss before income tax benefit, net loss, cash flow from operations, cash flow from financing activities or basic and diluted net loss per share during the three months ended March 31, 2005.

The fair value of each option award is estimated on the grant date using the Black-Scholes-Merton option-pricing model based on the assumptions noted in the following table:

	Three Months Ended March 31,
	2006		2005
Expected volatility	52.75-53.41	%	49.14-47.79	%
Risk-free interest rate	4.35-4.72	%	3.71-4.17	%
Expected life (years)	5-6.25		5
Expected dividend	—		—

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Volatility is determined exclusively based on historical volatility data of the Company’s common stock from the period of time beginning with the Company’s merger with Genesoft in February 2004 through the month of grant. For option grants made subsequent to the adoption of SFAS 123R, the expected life of stock options granted is based on the simplified method allowable under SAB 107, “Share-Based Payment”. Accordingly, the expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. The expected life is applied to one group as a whole as the Company does not expect substantially different exercise or post-vesting termination behavior amongst its employee population. The Company will continue to review the expected life among the employee population to determine whether multiple groups for post-vesting terminations is necessary. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The Company has not paid and does not anticipate paying cash dividends, therefore the expected dividend yield is assumed to be 0%.

A summary of activity related to stock options under the Option Plans as of March 31, 2006, and changes during the three month period then ended is presented below (in thousands, except weighted average data):

	Number of Options		Weighted- average Exercise Price		Weighted-average Remaining Contracted Term in Years	Aggregate Intrinsic Value
Outstanding at December 31, 2005	8,861		$	4.06
Granted	1,183		$	1.95
Exercised	(83	)	$	1.51
Forfeited/Cancelled	(753	)	$	5.73
Outstanding at March 31, 2006	9,208		$	3.68	8.06	$	2,305
Exercisable at March 31, 2006	4,415		$	4.47	6.99	$	1,992

The total compensation cost that has been charged to income during the first quarter of 2006 was approximately $1,051,000. The Company’s policy is to recognize compensation cost for awards with service conditions and graded vesting using the straight-line method. Additionally the Company’s policy is to issue authorized but previously unissued shares to satisfy share option exercises. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. In addition, the requisite service period is generally equal to the vesting term. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. The Company has applied an annual forfeiture rate of 16.85% to options in calculating total recognized compensation cost as of March 31, 2006. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

Using the Black-Scholes-Merton option-pricing model, the weighted average grant date fair values of options granted during the three months ended March 31, 2006 and 2005 were $1.06 and $1.44, respectively. For the three months ended March 31, 2006, the Company granted 1,183,000 in stock options with a weighted average exercise price of $1.95. For the three months ended March 31, 2005, the Company granted 2,251,995 in stock options with a weighted average exercise price of $3.02.

During the three months ended March 31, 2006 and 2005, the total intrinsic value of options exercised was $68,000 and $1,593,000, respectively. The total amount of cash received from exercise of these options during the three months ended March 31, 2006 and 2005 was $122,000 and $353,000 respectively.

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The Option Plans also provide for awards of nontransferable shares of restricted common stock which are subject to forfeiture. All shares of restricted stock vest based on service conditions in two equal installments over a two-year period. Generally, the fair value of each restricted stock award is equal to the market price of the Company’s stock at the date of grant. Certain share awards provide for accelerated vesting if there is a change in control.

A summary of activity related to restricted stock under the Option Plans as of March 31, 2006, is indicated in the following table (in thousands, except weighted average data):

	Number of Shares		Weighted-average grant date fair value
Outstanding at December 31, 2005	—		$	—
Granted	420			1.93
Vested	—			—
Forfeited	(2	)		1.93
Outstanding at March 31, 2006	418		$	1.93

As of March 31, 2006, there was $8.0 million of total unrecognized compensation cost related to unvested share based awards. This cost is expected to be recognized over a weighted average period of 2.1 years. The Company expects approximately 4,333,000 in unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

(5) Cash, Cash Equivalents and Marketable Securities

The Company applies the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” At March 31, 2006 and December 31, 2005, the Company’s investments included short-term marketable securities. Cash equivalents are short-term, highly liquid investments with maturities of 90 days or less. Marketable securities are investment securities with original maturities of greater than 90 days. Cash equivalents are carried at cost, which approximates fair value. Marketable securities that are classified as held-to-maturity are recorded at amortized cost, which approximates fair value. At March 31, 2006 and December 31, 2005, cash and cash equivalents consisted of money market funds and commercial paper and marketable securities consisted of corporate obligations. At March 31, 2006 and December 31, 2005, the average maturity of the Company’s investments was approximately 0.5 months and 0.9 months, respectively. At December 31, 2005, the Company had a net unrealized loss of approximately $1,000, which is the difference between the amortized cost and the fair value of the held-to-maturity investments related to government and well capitalized corporations. Therefore, the Company deemed the loss to be temporary. The fair value of the Company’s cash equivalents and marketable securities is determined based on market value.

At March 31, 2006 and December 31, 2005, the Company’s cash, cash equivalents and marketable securities consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2006
Cash and Cash Equivalents:
Cash	$	43,869	$	—	$	—		$	43,869
Money market funds		7,731		—		—			7,731
Short-term corporate obligations		750		—		—			750
Total cash and cash equivalents	$	52,350	$	—	$	—		$	52,350
December 31, 2005
Cash and Cash Equivalents:
Cash	$	43,069	$	—	$	—		$	43,069
Money market funds		11,326		—		—			11,326
Commercial paper		11,223		4		—			11,227
Total cash and cash equivalents	$	65,618	$	4	$	—		$	65,622
Marketable Securities (held-to-maturity):
Short-term corporate obligations	$	2,696	$	—	$	(1	)	$	2,695
Total short-term marketable securities	$	2,696	$	—	$	(1	)	$	2,695

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(6) Notes Receivable

In connection with a lease agreement associated with vehicles for the Company’s sales representatives, the Company was issued notes by the lessor totaling approximately $2,740,000 related to the repayment of security deposits made by the Company. The notes bear interest at rates ranging from 5.5% to 6.25% and have expiration dates ranging from March 2008 to August 2008. Principal and interest are repaid by the lessor to the Company over the 36 month lease term as lease payments are made on the vehicles.

(7) Long-Term Obligations

In the quarter ended June 26, 2004, the Company issued $152,750,000 in principal amount of its 3.5% senior convertible promissory notes due in April 2011. These notes are convertible into the Company’s common stock at the option of the holders at a conversion price of approximately $6.64 per share. The Company may not elect to redeem the notes before May 10, 2010. After this date, the Company can redeem all or a part of the notes for cash at a price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest. Upon the occurrence of a termination of trading of the Company’s common stock or a change of control transaction in which substantially all of the Company’s common stock is exchanged for consideration other than common stock that is listed on a U.S. national securities exchange or market (such as NASDAQ), holders of these notes have the right to require the Company to repurchase all or any portion of their notes at a price equal to 100% of the principal amount plus accrued and unpaid interest. In addition, in the case of a change of control transaction in which all of the consideration paid for the Company’s common stock consists of cash, the Company may have an obligation to pay an additional make-whole premium to the note holders based on a formula set forth in the indenture. In connection with the issuance, the Company recorded deferred financing costs of $5,708,000 which is being amortized to interest expense on a straight-line basis over the period the notes are outstanding. A portion of the net proceeds from the offering was used to purchase U.S. government securities as pledged collateral to secure the first six scheduled interest payments on the notes, the unpaid portions of which are classified as restricted cash on the March 31, 2006 and December 31, 2005 consolidated balance sheets. As part of the issuance, the Company filed a shelf registration statement relating to the resale of the notes and the common stock issuable upon conversion.

On February 6, 2004, in connection with the merger with Genesoft, the Company issued $22,309,647 in principal amount of 5% convertible promissory notes due in February 2009. These notes are convertible into the Company’s common stock at the option of the holders, at a conversion price of approximately $6.64 per share (subject to anti-dilution and other adjustments). In addition, the Company has the right to force conversion if the price of its common stock closes above 150% of the then effective conversion price for 15 consecutive trading days. At the closing of the merger, the holders of these notes also received an aggregate 4,813,547 shares of the Company’s common stock representing the payment of accrued interest and related amounts on certain outstanding notes previously issued to such holders by Genesoft.

(8) Supply Agreement

In October 2002, Genesoft, now a subsidiary of the Company, entered into a license and option agreement with LG Life Sciences to develop and commercialize FACTIVE in North America, France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. This agreement subsequently was assigned to the Company. The term of the agreement with respect to each country extends at least through the life of the patents covering gemifloxacin in such country. In the United States, the last of the currently issued patents for composition of matter expires in 2018. The term could extend further depending upon several factors, including the timing of the commercial sale of the product in a particular country. The product was approved for sale in the United States in April 2003 for the treatment of acute bacterial exacerbation of chronic bronchitis and community-acquired pneumonia of mild to moderate severity.

Under the terms of the agreement, LG Life Sciences has agreed to supply, and the Company is obligated to purchase, from LG Life Sciences all of the Company’s anticipated commercial requirements for FACTIVE bulk drug substance. LG Life Sciences currently supplies the FACTIVE bulk drug substance from its manufacturing facility in South Korea.

The agreement also requires the Company to achieve a minimum level of FACTIVE sales over a period of time, which if not met, would result in the technology being returned to LG Life Sciences. Under this agreement, the Company is responsible, at its expense and through consultation with LG Life Sciences, for the clinical and commercial development of gemifloxacin in the countries covered by the license, including the conduct of clinical trials, the filing of drug approval applications with the FDA and

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other applicable regulatory authorities and the marketing, distribution and sale of gemifloxacin in the Company’s territory; provided, that LG Life Sciences has the right to co-promote the product, on terms to be negotiated, in the Company’s territory for 2008 and periods commencing thereafter, in which case the Company’s royalty obligations to LG Life Sciences would cease. In an amendment dated March 31, 2005 as further described below, LG Life Sciences’ right to co-promote will terminate upon the Company reaching a certain level of sales.

The Company is obligated to pay a royalty on sales of FACTIVE in North America and the territories covered by the license in Europe. These royalty obligations expire with respect to each country covered by the agreement on the later of the expiration of the patents covering FACTIVE in such country or ten years following the first commercial sale of FACTIVE in such country. Pursuant to the license and option agreement, as amended to date, the Company is also obligated to make aggregate milestone payments of up to $31 million (not including upfront payments) to LG Life Sciences upon achievement of additional regulatory approvals and sales thresholds and upon consummation of sublicensing agreements.

On March 31, 2005, the Company amended its license and option agreement with LG Life Sciences. As part of the amendment of the agreement, the Company made a one time, upfront, payment of $2 million to LG Life Sciences which was recorded to general and administrative expense in the three month period ended March 31, 2005 and agreed to make certain additional milestone payments upon obtaining regulatory approvals and sales thresholds. The amended agreement also includes a reduction of future royalties payable to LG Life Sciences at certain FACTIVE revenue levels in territories covered by the agreement.

The Company further amended its agreement with LG Life Sciences on February 3, 2006, pursuant to which LG Life Sciences agreed to a reduction of future royalties payable for sales of FACTIVE tablets in Mexico and Canada and the termination of LG Life Sciences’ co-promotion rights in these countries if the Company consummates sublicense agreements in such countries prior to dates specified in the amendment. As part of the amendment to the agreement, the Company made a one-time, up front non-refundable payment to LG Life Sciences which was deferred and is being recorded to general and administrative expense over the expected term of the respective sublicensing agreement. The modified agreement also calls for additional milestone payments to be made to LG Life Sciences upon consummation of sublicense agreements in Mexico and Canada as well as upon receipt of regulatory approval of FACTIVE in each of such countries.

Gross margins of FACTIVE, after standard product costs and royalties but excluding amortization of intangible assets, continue to be in the 70%-75% range through September 2006 and are expected to be in the 65%-70% range thereafter. However, as a result of the amendment to the LG agreement discussed above, gross margins may be in the 70%-75% range after September 2006 if significantly higher sales of FACTIVE are achieved, which would require a significant expansion of the sales effort.

(9) Co-Promotion of TESTIM

On April 11, 2005, the Company entered into a co-promotion agreement (the Co-Promotion Agreement) with Auxilium under which the Company and Auxilium have begun to co-promote in the U.S. Auxilium’s marketed product, TESTIM, a topical 1% testosterone gel indicated for the treatment of male hypogonadism. Pursuant to the Co-Promotion Agreement, the Company has the exclusive right to promote TESTIM jointly with Auxilium to primary care physicians. The initial term of the Co-Promotion Agreement with Auxilium ends on April 30, 2007. The Company may extend the agreement for two consecutive two-year periods provided that it has met certain milestones for each extension related to physician detailing, market share and gross sales. If these milestones are met and the Company does not elect to terminate the Co-Promotion Agreement, the first extension period will end on December 31, 2008 and the second extension period will end on April 30, 2011.

Both organizations have established and continue to jointly develop a promotion plan which sets forth the responsibilities of both parties with respect to the marketing and promotion of TESTIM in the U.S. for the primary care physician market. The Company is obligated to share TESTIM promotional expenses to this physician market equally with Auxilium. The Company and Auxilium share equally expenses related to the promotion of TESTIM to the primary care physician market. Each party will be responsible for the costs associated with its own sales force. In addition, Auxilium is obligated to pay the Company a co-promotion fee based on a specified percentage of the gross profit from TESTIM sales attributable to primary care physicians in the U.S. that exceeds a cumulative specified sales threshold. These fees are classified as co-promotion revenue in the accompanying statements of operations. The specific percentage is based upon TESTIM sales levels attributable to primary care physicians and the marketing expenses incurred by the Company in connection with the promotion of TESTIM under the Co-Promotion Agreement. There is no cost of goods sold associated with co-promotion revenue, and the selling and marketing expenses related to co-promotional sales are classified as selling and marketing expenses in the accompanying statement of operations. The Co-Promotion Agreement can be terminated by either party upon the occurrence of certain termination events, including if a generic form of TESTIM is approved and sold in the United States, in which case Auxilium is obligated to pay the Company a specified percentage of the profits for product sales for the following two years. Also, the Company has been granted the exclusive option to co-promote any future Auxilium product candidate that treats male hypogonadism and contains testosterone as the active ingredient.

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(10) Sublicense Agreement

On February 6, 2006, the Company entered into a Sublicensing and Distribution Agreement with Pfizer, S.A. de C.V. (Pfizer Mexico), pursuant to which the Company sublicensed its rights to sell FACTIVE tablets in Mexico to Pfizer Mexico. In exchange for those rights, Pfizer Mexico has agreed to pay the Company an up-front payment, milestone payments upon obtaining certain regulatory approvals and sales goals as well as royalties on future sales. The upfront payment is being recognized as revenue over the term of the Company’s obligations under the agreement. These royalty rates are subject to reduction upon expiration of certain patents in Mexico for FACTIVE or if a generic form of gemifloxacin has a material impact on Pfizer Mexico’s sales volumes in Mexico. Pfizer Mexico is obligated to exclusively purchase from the Company, and the Company must exclusively supply, all active pharmaceutical ingredient for FACTIVE. The agreement with Pfizer Mexico may be terminated by either party upon the occurrence of certain termination events, including Pfizer Mexico’s right to terminate at any time after the first anniversary of launch of FACTIVE tablets in Mexico upon six months prior written notice. Upon termination of the Pfizer Agreement, Pfizer Mexico is obligated to assign any and all rights to regulatory approvals in Mexico to the Company or its designee.

(11) Subsequent Events

On April 11, 2006, the Company closed a private placement of its common stock with institutional and other accredited investors pursuant to which the Company sold an aggregate of 18,035,216 shares of its common stock at a price of $1.93 per share and warrants to purchase 9,017,608 shares of common stock at a price of $0.125 per share of the common stock issuable pursuant to such warrants. The warrants have an exercise price of $2.22 per share and a term of five years.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained herein related to future operating losses and our potential for profitability, the sufficiency of our cash resources, future revenues and sales of FACTIVE^® and TESTIM^®, our discount and rebate programs for FACTIVE, gross margin in future periods, our ability to obtain approval from the FDA for a five-day course of therapy for CAP, our discussions with the FDA regarding our ABS filing and the FDA’s convening of an Advisory Committee related to the ABS sNDA, our ability to secure a long term source of bulk drug supply for Ramoplanin as well as other statements related to the progress and timing of product development, present or future licensing, collaborative or financing arrangements or that otherwise relate to future periods, are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements represent, among other things, the expectations, beliefs, plans and objectives of management and/or assumptions underlying or judgments concerning the future financial performance and other matters discussed in this document. The words “may,” “will,” “should,” “plan,” “believe,” “estimate,” “intend,” “anticipate,” “project,” and “expect” and similar expressions are intended to identify forward-looking statements. All forward-looking statements involve certain risks, estimates, assumptions, and uncertainties with respect to future revenues, cash flows, expenses and the cost of capital, among other things.

Some of the important risk factors that could cause our actual results to differ materially from those expressed in our forward-looking statements are included under the heading “Risk Factors” in this Form 10-Q. We encourage you to read these risks carefully. We caution investors not to place significant reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.

Overview

We are a commercial-stage biopharmaceutical company committed to the clinical development and commercialization of new therapeutics to serve unmet medical needs. We currently promote two products in the U.S. pharmaceutical market. Our lead product is the fluoroquinolone antibiotic FACTIVE^® (gemifloxacin mesylate) tablets, indicated for the treatment of community-acquired pneumonia of mild to moderate severity (CAP) and acute bacterial exacerbations of chronic bronchitis (AECB). The commercial sale of FACTIVE began in September 2004 and FACTIVE is currently promoted nationally by a sales team comprised of approximately 280 representatives. We also co-promote Auxilium Pharmaceuticals, Inc.’s marketed product, TESTIM gel, a topical 1% testosterone gel indicated for the treatment of male hypogonadism. Additionally, we are developing a novel antibiotic candidate, Ramoplanin, for the treatment of Clostridium difficile-associated disease.

We have incurred significant operating losses since our inception. As of March 31, 2006, we had an accumulated deficit of approximately $357.5 million. We expect to incur additional operating losses over the next several years due to

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the implementation of manufacturing, distribution, marketing and sales capabilities, as well as continued research and development efforts and clinical trials.

FACTIVE

Overview

Our lead product is FACTIVE tablets, indicated for the treatment of community-acquired pneumonia of mild to moderate severity, or CAP, and acute bacterial exacerbations of chronic bronchitis, or AECB. The product was approved for sale in the United States in April 2003 for such indications.

In October 2002, we entered into a license and option agreement with LG Life Sciences to develop and commercialize gemifloxacin, a novel fluoroquinolone antibiotic, in North America, France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. The term of the agreement with respect to each country extends at least through the life of the patents covering gemifloxacin in such country. In the United States, the last of the currently issued patents for composition of matter expires in 2018.

Under the terms of the agreement, LG Life Sciences has agreed to supply and we are obligated to purchase from LG Life Sciences all of our anticipated commercial requirements for the FACTIVE bulk drug substance. LG Life Sciences currently supplies the FACTIVE bulk drug substance from its manufacturing facility in South Korea.

The agreement with LG Life Sciences also requires a minimum sales commitment over a period of time, which if not met, would result in the technology being returned to LG Life Sciences. Under this agreement, we are responsible, at our expense and through consultation with LG Life Sciences, for the clinical and commercial development of gemifloxacin in the countries covered by the license, including the conduct of clinical trials, the filing of drug approval applications with the FDA and other applicable regulatory authorities and the marketing, distribution and sale of gemifloxacin in our territory; provided, that LG Life Sciences has the right to co-promote the product, on terms to be negotiated, in our territory commencing in 2008 and for periods thereafter, in which case our royalty obligations to LG Life Sciences would cease. Pursuant to an amendment dated March 31, 2005 as further described below, LG Life Sciences’ right to co-promote in the U.S. will terminate upon our reaching a certain level of sales.

We are obligated to pay a royalty on sales of FACTIVE in North America and the territories covered by the license in Europe. These royalty obligations expire with respect to each country covered by the agreement on the later of the expiration of the patents covering FACTIVE in such country or ten years following the first commercial sale of FACTIVE in such country. Pursuant to the licence and option agreement, as amended to date, we are also obligated to make aggregate milestone payments of up to $31 million (not including upfront payments) to LG Life Sciences upon achievement of additional regulatory approvals and sales thresholds and upon consummation of sublicensing agreements.

On March 31, 2005, we amended our license and option agreement with LG Life Sciences. As part of the amendment of the agreement, we made a one time, upfront payment of $2 million to LG Life Sciences which was recorded to general and administrative expense in the three month period ended March 31, 2005 and agreed to make certain milestone payments upon obtaining regulatory approvals and sales thresholds. The amended agreement also includes a reduction of future royalties payable to LG Life Sciences at certain FACTIVE revenue levels in territories covered by the agreement.

We further amended our agreement with LG Life Sciences on February 3, 2006, pursuant to which LG Life Sciences agreed to a reduction of future royalties payable for sales of FACTIVE tablets in Mexico and Canada and the termination of LG Life Sciences’ co-promotion rights in these countries if we consummate sublicense agreements in such countries prior to dates specified in the amendment. The modified agreement also calls for milestone payments to be made to LG Life Sciences upon consummation of sublicense agreements in Mexico and Canada as well as upon receipt of regulatory approval of FACTIVE in each of such countries.

Gross margins of FACTIVE sales in the U.S., after standard product costs and royalties but excluding amortization of intangible assets, continue to be in the 70%-75% range through September 2006 and are expected to be in the 65%-70% percent range thereafter. As a result of the March 2005 amendment to the LG agreement discussed above, gross margins may be in the 70%-75% range after September 2006 if significantly higher sales of FACTIVE are achieved, which would require a significant expansion of the sales effort.

As a condition to the approval to sell FACTIVE tablets, the FDA has required, as a post-marketing study commitment, that we conduct a prospective, randomized study comparing FACTIVE tablets (5,000 patients) to an active comparator (2,500 patients) in patients with acute bacterial exacerbations of chronic bronchitis and community-acquired pneumonia of mild to moderate severity. This study will include patients of different ethnicities to gain safety information in populations

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not substantially represented in the existing clinical trial program. Patient enrollment for this Phase IV trial, with approval from the FDA, commenced during the fall of 2004 and is scheduled to be completed within three to four years of commencement. Although we cannot predict with certainty the remaining costs related to this study, we currently estimate it will cost between $7-8 million of additional spending to complete the study.

Commercialization and Development

We began selling FACTIVE tablets in September 2004 with an initial sales force of 100 representatives and, as of March 2006, continue to utilize a full-time sales force of approximately 250 sales representatives, to be supplemented by approximately 30 part-time sales personnel anticipated to begin work in June 2006.

We are also seeking to expand the commercial opportunities for FACTIVE through additional development and clinical study plans for the product. We have completed a clinical trial to demonstrate that a five-day course of FACTIVE for the treatment of mild to moderate CAP is as effective as the currently approved seven-day course of treatment. The FDA is reviewing our sNDA seeking marketing approval for the use of FACTIVE for the five-day treatment of CAP. The FDA granted a standard ten-month review period for the five-day CAP sNDA and is expected to act on the filing by the end of September 2006. The acceptance for filing of the CAP sNDA does not assure approval.

As part of the FACTIVE development program, several studies relating to acute bacterial sinusitis, or ABS, were completed; and, in November 2005, we filed an sNDA for ABS. In January 2006, the FDA informed us that it had refused to accept for filing the sNDA for the five-day treatment of ABS. In its refusal to accept the sNDA filing for ABS, the FDA indicated that FACTIVE did not exhibit an acceptable risk versus benefit profile for the ABS indication. In addition, the FDA expressed the opinion that demonstrating an acceptable risk versus benefit profile for FACTIVE in ABS was not feasible, given the FDA’s view of the potential risk of rash in those patients. As part of the process to address the FDA’s concerns related to this indication, we met with officials at the FDA to continue the dialogue regarding appropriate subsequent actions. Through these discussions, we requested that the FDA file the sNDA over protest. The FDA has now filed the sNDA over protest and we expect a response from the FDA on the ABS sNDA by the end of 2006. More recently, we received notification from the FDA that it intends to convene an Advisory Committee to review the sNDA for ABS which could take place this fall. Given the FDA’s original decision to refuse to accept the sNDA for the treatment of ABS, we cannot guarantee that the ABS indication will ever be approved by the FDA.

On February 6, 2006, we entered into a Sublicensing and Distribution Agreement with Pfizer, S.A. de C.V. (Pfizer Mexico), pursuant to which we sublicensed our rights to sell FACTIVE tablets in Mexico to Pfizer Mexico. In exchange for those rights, Pfizer Mexico has agreed to pay us an up-front fee, milestone payments upon obtaining certain regulatory approvals and sales goals as well as royalties on future sales. These royalty rates are subject to reduction upon expiration of certain patents in Mexico for FACTIVE or if a generic form of gemifloxacin has a material impact on Pfizer Mexico’s sales volumes in Mexico. Pfizer Mexico is obligated to exclusively purchase from us, and we must exclusively supply, all active pharmaceutical ingredient for FACTIVE. The agreement with Pfizer Mexico may be terminated by either party upon the occurrence of certain termination events, including Pfizer Mexico’s right to terminate at any time after the first anniversary of launch of FACTIVE tablets in Mexico upon six months prior written notice. Upon termination of the Pfizer Agreement, Pfizer Mexico is obligated to assign any and all rights to regulatory approvals in Mexico to us or our designee.

Co-Promotion of TESTIM

On April 11, 2005, we entered into a co-promotion agreement with Auxilium Pharmaceuticals, Inc. under which we and Auxilium will co-promote in the United States Auxilium’s marketed product, TESTIM gel, a topical 1% testosterone gel indicated for the treatment of male hypogonadism. Pursuant to the agreement, we have the exclusive right to promote TESTIM gel jointly with Auxilium to primary care physicians. The initial term of the agreement ends on April 30, 2007. We may extend the agreement for two consecutive two-year periods provided that we have met certain milestones for each extension related to physician detailing, market share and gross sales. If these milestones are met and we do not elect to terminate the co-promotion agreement, the first extension period will end on December 31, 2008 and the second extension period will end on April 30, 2011.

Both organizations have established and continue to develop a promotion plan which sets forth the responsibilities of both parties with respect to the marketing and promotion of TESTIM gel in the U.S. primary care physician market. We are obligated to share TESTIM promotional expenses to this physician market equally with Auxilium. Each party will be responsible for the costs associated with its own sales force. In addition, Auxilium is obligated to pay us a co-promotion fee based on a specified percentage of the gross profit from TESTIM sales attributable to primary care physicians in the U.S. that exceeds a specified sales threshold. The specific percentage is based upon TESTIM sales levels attributable to primary care physicians and the marketing expenses incurred by us in connection with the promotion of TESTIM gel under the co-promotion agreement. The co-promotion agreement can be terminated by either party upon the occurrence of certain

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termination events, including approval and sale of a generic form of TESTIM gel in the United States, in which case Auxilium is obligated to pay to us a specified percentage of the profits for product sales for the following two years. Also, we have been granted the exclusive option to co-promote any future Auxilium product candidate that treats male hypogonadism and contains testosterone as the active ingredient. The co-promotion agreement requires that the terms and conditions of any such future agreement be negotiated in good faith by the parties at the time the option is exercised.

Research and Development Programs

FACTIVE

As a condition to the approval to sell FACTIVE tablets, the FDA has required, as a post-marketing study commitment, that we conduct a prospective, randomized study comparing FACTIVE tablets (5,000 patients) to an active comparator (2,500 patients) in patients with acute bacterial exacerbations of chronic bronchitis and community-acquired pneumonia of mild to moderate severity. This study will include patients of different ethnicities to gain safety information in populations not substantially represented in the existing clinical trial program. Patient enrollment for this Phase IV trial, with approval from the FDA, commenced patient enrollment during the fall of 2004 and is scheduled to be completed within three to four years. Although we cannot predict with certainty the costs necessary to complete this study, we currently estimate it will cost between $7-8 million of additional spending to complete the study.

Additionally, in April of 2005, we completed a Phase III trial examining the potential use of FACTIVE tablets for the five-day treatment of mild to moderate community-acquired pneumonia. Based on the results of this study, in October 2005 we submitted a supplemental New Drug Application with the FDA for approval to promote the five-day treatment of FACTIVE tablets for this indication. In January 2006, the FDA accepted our submission for filing. We expect the FDA to act on our application by the end of September 2006. There is no assurance that the FDA will approve our application.

Ramoplanin

We are developing a novel investigational antibiotic candidate, Ramoplanin, which is currently in development for the treatment of Clostridium difficile-associated disease, or CDAD. In October 2001, we in-licensed Ramoplanin from Vicuron Pharmaceuticals Inc. (Vicuron), now a wholly-owned subsidiary of Pfizer Inc., and on February 3, 2006, acquired worldwide rights from Vicuron, assuming full control of Ramoplanin manufacturing, development and commercialization.

We agreed with the FDA to a Special Protocol Assessment (SPA) regarding the specific components of a Phase III program that, if completed successfully, would support regulatory approval for the indication. According to the agreement reached with the FDA, the required clinical development program will be comprised of two pivotal Phase III trials. The two non-inferiority studies will enroll, in each trial, approximately 490 patients diagnosed with CDAD, from centers in the United States, Canada and other parts of the world. Each patient will be randomly assigned to one of two treatment arms, in a double-blind fashion: Ramoplanin 200 mg twice daily or vancomycin 125 mg four times daily for ten days. The primary endpoint will be the response rate at end of therapy. We have recently engaged a contract research organization and started the process of assessing sites in advance of the start of the Phase III studies. We plan to commence the Phase III in the third quarter of 2006. Cost and timing related to such Phase III program will remain subject to numerous factors beyond our control, such as identifying centers and physicians to conduct the clinical trials, the pace of enrollment in clinical trials, possible regulatory delays of clinical trials and the strength of the data produced by a given trial. As a results of these factors, we are unable to determine the estimated completion date or the estimated cost to complete the Ramoplanin trial.

Critical Accounting Policies & Estimates

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Our preparation of this Report requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our critical accounting policies include the following:

Revenue Recognition

Our principal source of revenue is the sale of FACTIVE tablets, which began shipping in the third quarter of 2004. In the second quarter of 2005, we began recognizing co-promotion revenue in connection with our agreement with Auxilium. Other historical sources of revenue include biopharmaceutical alliances and royalties from the divested genomic services business. In future periods, we expect our revenues derived from biopharmaceutical alliances will continue to decrease, however product revenues and co-promotion revenues will continue to increase based on anticipated increased volume of prescriptions of FACTIVE tablets and TESTIM testosterone gel.

We expect demand for FACTIVE to be highest between November 1 and March 31 as the incidence of respiratory tract infections, including CAP and AECB, tend to increase during the winter months. In addition, fluctuations in the severity of the annual respiratory tract infection season may cause our product sales to vary from year to year. Due to these seasonal fluctuations in demand, our results in any particular quarter may not be indicative of the results for any other quarter or for the entire year.

Product Sales

We follow the provisions of Staff Accounting Bulletin No. 104, “Revenue Recognition (a replacement of SAB 101)” (SAB 104) and recognize revenue from product sales upon delivery of product to wholesalers, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, title to product and associated risk of loss has passed to the wholesaler and collectability of the related receivable is reasonably assured. All revenues from product sales are recorded net of

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applicable allowances for sales returns, rebates, special promotional programs, and discounts. For arrangements where the risk of loss has not passed to wholesalers or pharmacies, we defer the recognition of revenue by recording deferred revenue until such time that risk of loss has passed. Also, the cost of FACTIVE associated with amounts recorded as deferred revenue is recorded in inventory until such time as risk of loss has passed.

Co-Promotion Revenue

Amounts earned under our co-promotion agreement with Auxilium from the sale of TESTIM gel, a product developed by Auxilium, is classified as co-promotion revenue in our accompanying consolidated statements of operations. Auxilium is obligated to pay us a co-promotion fee based on a specified percentage of the gross profit from TESTIM sales attributable to primary care physicians in the U.S. that exceeds a specified cumulative sales threshold, determined on an annual basis. The specific percentage is based upon TESTIM sales levels attributable to primary care physicians and the marketing expenses incurred by us in connection with the promotion of TESTIM under the co-promotion agreement. Such co-promotion revenue is earned when TESTIM units are dispensed through patient prescriptions. There is no cost of goods sold associated with co-promotion revenue, and the selling and marketing expenses incurred with respect to the co-promotion arrangement are classified as selling and marketing expenses in our consolidated statements of operations.

Biopharmaceutical/Other Revenue

Prior to our merger with Genesoft Pharmaceuticals, Inc. in 2004, we pursued biopharmaceutical revenues through alliance partnerships with pharmaceutical companies and through government grants. We also maintained a genomics services business. We have now shifted our focus to the development and commercialization of pharmaceutical products. The declining revenues and associated expenses for the genomics services business have been classified as discontinued operations in the accompanying consolidated financial statements.

Biopharmaceutical revenues have consisted of government research grants and license fees, contract research, and milestone payments from alliances with pharmaceutical companies. Genomics services revenues have consisted of government sequencing grants, fees and royalties received from custom gene sequencing, and analysis services.

Other revenues consist of sublicensing revenues related to FACTIVE related to Pfizer Mexico. We recognize revenue in accordance with Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21). In accordance with EITF No. 00-21, the up-front payment related to the Pfizer Mexico license agreement will be recognized as revenue over the term of the Company’s obligations under the agreement.

Sales Rebates, Discounts and Incentives

Our FACTIVE product sales are made to pharmaceutical wholesalers for further distribution through pharmacies to the ultimate consumers of the product. When we deliver our product, we reduce the amount of gross revenue recognized from such product sales based primarily on estimates of four categories of discounts and allowances that suggest that all or part of the revenue should not be recognized at the time of the delivery—product returns, cash discounts, rebates, and special promotional programs.

Product Returns

Factors that are considered in our estimate of future product returns include an analysis of the amount of product in the wholesaler and pharmacy channel, review of consumer consumption data as reported by external information management companies, return rates for similar competitive antibiotic products that have a similar shelf life and are sold in the same distribution channel, the remaining time to expiration of our product, and our forecast of future sales of our product. Consistent with industry practice, we offer contractual return rights that allow our customers to return product within six months prior to and six months subsequent to the expiration date of our product. Our product has a 36-month expiration period from the date of manufacturing into a tablet. At March 31, 2006 and December 31, 2005, our product return reserve was approximately $824,000 and $720,000, respectively. This reserve is evaluated on a quarterly basis, assessing each of the factors described above, and adjusted accordingly. Based on the factors noted above, we believe our estimate of product returns is reasonable, and changes, if any, from this estimate would not have a material impact to our financial statements.

Cash Discounts

Our standard invoice includes a contractual cash 2% discount, net 30 days terms. Based on historical experience, we estimate that most of our customers deduct a 2% discount from their balance. The cash discount reserve is presented as an

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allowance against trade receivables. As of March 31, 2006 and December 31, 2005, the balance for cash discounts was approximately $140,000 and $50,000, respectively.

Rebates

The liability for managed care rebates is calculated upon historical and current rebate redemption and utilization rates contractually submitted by each state. As of March 31, 2006 and December 31, 2005 the balance of the accrual for managed care rebates was approximately $420,000 and $381,000, respectively. Considering the estimates made by us, as well as estimates prepared by third party utilization reports that are necessary in evaluating the required liability balance, we believe our estimates are reasonable, and changes, if any, from those estimates would not be material to the financial statements. As of March 31, 2006, there have been no material changes to our estimates in the periods presented.

Special Promotional Programs

We have offered certain promotional incentives to date to our customers and may continue this practice in the future. Such programs include: sample cards to end consumers, certain product incentives to pharmacy customers, and other sales stocking allowances. Examples of programs utilized to date follow:

Sample Card Rebate Program

During the first quarter of 2006, we initiated a sample card program whereby we offered an incentive to patients in the form of a free full-course sample card for FACTIVE. We have accounted for this program in accordance with EITF No. 01-09. We developed a reasonable and reliable estimate of the amount of expected reimbursement claims based on actual claims submitted by and processed by a third party claims processing organization in 2005. The program expired on March 31, 2006, at which point the balance of the liability for this sample card program was approximately $2,606,000.

Voucher Rebate Programs

During the fourth quarter of 2005, we initiated a voucher rebate program whereby we offered mail-in rebates to retail consumers. We have accounted for this program in accordance with EITF No. 01-09. The liability we recorded for this voucher rebate program was based upon the historical rebate redemption rates for the similar completed program that we commenced in the first quarter of 2005. As of March 31, 2006 and December 31, 2005, the balance of the liability for this voucher program was approximately $23,000 and $93,000, respectively. The program will expire on April 30, 2006 and the balance will be adjusted for the actual redemption rate.

Clinical Trial Expense Accrual

Our clinical development trials related to FACTIVE and Ramoplanin are primarily performed by outside parties. At the end of each accounting period, we estimate both the total cost and time period of the trials and the percent completed as of that accounting date. We also adjust these estimates when final invoices are received. For the three-month period ended March 31, 2006, we adjusted our accrual for clinical trial expenditures to reflect our most current estimate of liabilities outstanding to outside parties. However, the possibility exists that the timing or cost of the clinical trials might be longer or shorter and cost more or less than we have estimated and that the associated financial adjustments would be reflected in future periods.

Inventories

Inventories are stated at the lower of cost or market with cost determined under the average cost method. Products are removed from inventory and recognized as cost of goods sold on an average cost basis. Inventories consist of FACTIVE raw material in powder form and work-in-process of approximately $9,770,000 and $9,770,000, and FACTIVE finished tablets of approximately $3,139,000 and $4,417,000, as of March 31, 2006 and December 31, 2005, respectively. On a quarterly basis, we analyze our inventory levels, and write down inventory and marketing samples that have become obsolete, have a cost basis in excess of its expected net realizable value or are in excess of forecast requirements to cost of product revenues and marketing expense, respectively. Expired inventory is disposed of and the related costs are written off. At March 31, 2006 and December 31, 2005, there was approximately $1,079,000 and $2,072,000, in FACTIVE sample product to be used for FACTIVE marketing programs, which is classified as an other current asset in the consolidated balance sheet.

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Long-Lived Assets

We follow the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). Under SFAS 144, long-lived assets and identifiable intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating the undiscounted cash flows is done at the lowest possible level for which there are identifiable assets. If the aggregate undiscounted cash flows are less than the carrying value of the asset, then the resulting impairment charge to be recorded is calculated based on the amount by which the carrying amount of the asset exceeds its fair value. Any write-downs are recorded as permanent reductions in the carrying amount of the asset.

We also follow the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142). Under SFAS 142, goodwill and purchased intangible assets with indefinite lives are not amortized but are reviewed periodically for impairment. We perform an annual evaluation of goodwill at the end of each fiscal year to test for impairment or more frequently if events or circumstances indicate that goodwill may be impaired. Because we have a single operating segment, which is our sole reporting unit, we perform this test by comparing the fair value of the entity with our book value, including goodwill. If the fair value exceeds the book value, goodwill is not impaired. If the book value exceeds the fair value, then we would calculate the potential impairment loss by comparing the implied fair value of goodwill with the book value. If the implied fair value of goodwill is less than the book value, then an impairment charge would be recorded. As of March 31, 2006, we do not believe that any of our long-lived assets, goodwill, and other intangible assets are impaired.

Stock-Based Compensation

Effective January 1, 2006, we adopted SFAS No. 123(R), “Share-Based Payment”, (SFAS No. 123R) using the modified prospective method. SFAS No. 123R requires all share based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values. Under the modified prospective transition method, compensation cost recognized during the three months ended March 31, 2006 includes (1) compensation cost for all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and (2) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Such amounts have been reduced by our estimate of forfeitures on all unvested options. Results for prior periods have not been restated.

Stock Plans

We grant stock to key employees and consultants under our 1991, 1993, 1995 and 1997 Stock Option Plans, as well as the 2001 Incentive Plan. The Stock Option and Compensation Committee of the Board of Directors determines the purchase price and vesting schedule applicable to each option grant. As of March 31, 2006, there are no shares reserved for future grants under the 1991, 1993, 1995 and 1997 Plans. The 2001 Incentive Plan provides for the grant of non-qualified stock options, incentive stock options, restricted stock, stock appreciation rights, unrestricted stock, deferred stock, and cash performance awards. Generally, options granted to employees vest over a two to four year time period and options granted to non-employees vest over a one to three year time period, all of which have graded vesting. In addition, the requisite service period is generally equal to the vesting term. All options granted to both employees and non-employees have a contractual life of ten years from date of grant and generally, the exercise price of the stock options equals the fair market value of our common stock. Our 2001 Incentive Plan also provides for awards of nontransferable shares of restricted common stock which are subject to forfeiture. All shares of restricted stock are time vested which is generally over 2 years. Generally, the fair value of each restricted stock grant is equal to the market price of our stock at the date of grant. Certain option and restricted stock awards provide for accelerated vesting if there is a change in control.

Employee Stock Purchase Plan

We also have an Employee Stock Purchase Plan (ESPP) under which eligible employees may contribute up to 15% of their earnings toward the semi-annual purchase of our common stock. The employees’ purchase price is 85% of the fair market value of the common stock at the time of grant of option or the time at which the option is deemed exercised, whichever is less. The current offering period began January 1, 2006 and is scheduled to end on June 30, 2006; therefore, January 1, 2006 is considered the grant date for the purposes of recognizing the stock-based compensation expense for this offering period. We project the estimated contributions at the beginning of the period in order to determine the estimated fair value of the stock to be issued. At the end of the offering period, we adjust the estimated contributions to actual. Under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), we were not required to recognize stock-based compensation expense for the cost of stock options or shares issued under our ESPP. Upon adoption of SFAS 123R, we began recording stock-based compensation expense related to the ESPP.

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Our assumptions used in calculating the fair value of each stock award is estimated on the grant date using the Black-Scholes-Merton option-pricing model based on the assumptions of volatility, risk-free interest rates, expected life of the option, and dividends (if any). The expected volatility is determined exclusively on historical volatility data of our common stock beginning with our merger with Genesoft in February 2004 through the month of grant. Our expected volatility for the three month period ended March 31, 2006 was between 52.75% and 53.41%. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. Our risk-free interest rate for the three month period ended March 31, 2006 was between 4.35% and 4.72%. The expected term of the stock award is based on the simplified method allowable under SAB 107, “Share Based Payment”. Accordingly, the expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. Our expected life using the simplified method for the three month period ended March 31, 2006 was 5 to 6.25 years. We have not paid and do not expect to pay any dividends, therefore our dividend yield is assumed to be 0%.

The adoption of SFAS No. 123R increased our first quarter 2006 operating loss, net loss, and cash flows from operating activities by $1,051,000 and basic and diluted net loss per share by $0.01. The compensation expense under SFAS No. 123R is recorded in cost of product sales, research and development expense, selling and marketing expense, and general and administrative expense based on the specific allocation of employees receiving the equity awards. Additionally, we eliminated the January 1, 2006 deferred compensation balance against additional paid-in capital upon adoption of SFAS No. 123R. Our adoption of SFAS No. 123R did not affect operating loss, loss before income tax benefit, net loss, cash flow from operations, cash flow from financing activities or basic and diluted net loss per share during the three months ended March 31, 2005.

Our policy is to recognize compensation cost for awards for only service conditions and graded vesting using the straight-line method. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. We have applied an annual forfeiture rate of 16.85% to all unvested options as of March 31, 2006. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

As of March 31, 2006, we estimate there was $8.0 million of total unrecognized compensation cost related to unvested share based awards. This cost is expected to be recognized over a weighted average period of 2.1 years. We expect approximately 4,333,000 in unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

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Results of Operations

Three Month Period Ended March 31, 2006 and March 31, 2005

Revenues

Total revenues increased 178% to approximately $10,973,000 for the three month period ended March 31, 2006 from approximately $3,946,000 for the three month period ended March 31, 2005.

Product sales increased 136% to approximately $9,246,000 for the three month period ended March 31, 2006 from $3,912,000 for the three month period ended March 31, 2005 due to higher shipments of FACTIVE tablets during the first quarter of 2006.

Co-promotion revenue increased to $1,545,000 for the three month period ended March 31, 2006 from $0 for the three month period ended March 31, 2005 due to the introduction of co-promoting TESTIM during the second quarter of 2005.

Biopharmaceutical/other revenues increased to approximately $182,000 for the three month period ended March 31, 2006 from approximately $34,000 for the three month period ended March 31, 2005, reflecting revenues from legacy assets.

Costs and Expenses

Total costs and expenses decreased 10% to approximately $29,763,000 for the three month period ended March 31, 2006 from approximately $33,207,000 for the three month ended March 31, 2005.

Cost of product sales increased 33% to approximately $2,750,000 for the three month period ended March 31, 2006 from $2,066,000 for the three month period ended March 31, 2005. The gross margin on product sales was approximately 70% and 47% for the three month periods ended March 31, 2006 and 2005. The improvement in margin during the three month period ended March 31, 2006 is due to higher volume of FACTIVE tablets shipped to wholesalers as a result of increased prescriptions written by primary care physicians. Included in the cost of product sales is approximately $1,191,000 of amortization of intangibles assets associated with FACTIVE for each of the three month periods ended March 31, 2006 and 2005. The gross margin excluding amortization of intangible assets was approximately 83% and 78% for the three month period ended March 31, 2006 and 2005.

Research and development expenses include internal research and development expenses, strategic alliance partners, as well as clinical development costs and expenses. Research and development expenses primarily consist of salaries and related expenses for personnel and amortization of intangible assets. Other research and development expenses include fees paid to consultants and outside service providers, information technology and facilities costs. Research and development expenses decreased 51% to approximately $2,928,000 for the three month period ended March 31, 2006 from approximately $6,004,000 for the three month period ended March 31, 2005. The decrease in research and development expenses is due to a reduction of expenses related to the completion of the FACTIVE 5-day clinical study in 2005 of approximately $1.9 million, a decrease in the technology transfer of FACTIVE of approximately $726,000 and a decrease in stock based compensation expense of approximately $786,000, offset by an increase of $336,000 in connection with the continuation of the FACTIVE post-marketing study.

Selling and marketing expenses increased slightly to approximately $20,445,000 for the three month period ended March 31, 2006 from $20,108,000 for the three month period ended March 31, 2005. The slight increase in selling and marketing expenses is due to an increase in sales and marketing personnel and related costs of approximately $83,000, an increase in other selling and marketing costs of approximately $1,522,000 to promote TESTIM, an increase in stock-based compensation expense of approximately $393,000, offset by a decrease in advertising and promotional costs of approximately $1,661,000.

General and administrative expenses decreased 28% to $3,640,000 for the three months period ended March 31, 2006 from $5,029,000 for the three month period ended March 31, 2005. The decrease is due to a one-time, up-front payment of $2 million incurred in the first quarter of 2005 to LG Life Sciences for an amendment to the license agreement, offset by an increase in stock-based compensation expense of approximately $531,000 for the three month period ended March 31, 2006.

Other Income and Expense

Interest income decreased 20% to approximately $696,000 for the three month period ended March 31, 2006 from approximately $870,000 for the three month period ended March 31, 2005 reflecting lower cash balances offset by higher interest rate yields from investments.

Interest expense decreased slightly to approximately $2,010,000 for the three month period ended March 31, 2006 from approximately $2,044,000 for the three month period ended March 31, 2005. For the period ended March 31, 2006, interest expense primarily consisted of approximately $1,337,000 related to the $153 million of senior convertible notes issued in the second quarter of 2004, $305,000 related to the issuance of $22 million of convertible notes issued in connection with the Genesoft merger, $205,000 related to amortization of deferred financing costs along with $161,000 of non-cash interest expense related to the facility lease liability.

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We recorded gain on sale of fixed assets of approximately $38,000 for the three month period ended March 31, 2005, primarily due to the sale of laboratory and computer in 2005, which were no longer used in operations.

We recorded income from the sale of intellectual property of $2,500,000 for the three month period ended March 31, 2005, due to the sale of intellectual property related to the genomic sequence of an undisclosed pathogen to Wyeth in 2005.

Liquidity and Capital Resources

Our primary sources of cash have been from the issuance of debt and equity securities, product discovery alliances, the sale of FACTIVE tablets and co-promotion revenues based on the sale of TESTIM.

As of March 31, 2006, we had total cash, cash equivalents, restricted cash and short-term marketable securities of approximately $64,150,000, which includes approximately $11,800,000 in restricted cash. In April 2006, we completed a private placement which resulted in gross proceeds of approximately $35,935,000. We may need to raise additional capital in the future to fund our operations. In order to facilitate the raising of additional funds, we have filed a shelf-registration statement with the SEC that allows us to sell up to $100 million of common stock. We believe that, under our current rate of investment in development and commercialization programs, our existing capital resources are adequate to support operations for the next 18 months. There is no assurance, however, that changes in our plans or events affecting our operations will not result in accelerated or unexpected expenditures.

We have experienced a significant increase in hiring costs in an effort to build an effective sales and marketing organization to commercialize FACTIVE tablets and co-promote TESTIM, expand the medical/development organization to support additional FACTIVE development and commercialization, support the development of Ramoplanin and to build the infrastructure necessary to support these expansions. We expect expenses in the sales and marketing areas to remain at the same level as we continue to promote the sale of TESTIM and commercialize FACTIVE.

Cash Flows

Our operating activities used cash of approximately $16,548,000 and $30,416,000 for the three month periods ended March 31, 2006 and 2005, respectively. Cash used in our operating activities for three month period ended March 31, 2006 was primarily a result of our net loss of approximately $20,104,000 and an increase in accounts receivable of approximately $2,781,000 due to higher sales volume of FACTIVE tablets. Cash used in our operating activities was also a result of decreases in accounts payable of approximately $957,000, clinical trial expense accrual of approximately $292,000 related to the FACTIVE post marketing studies, accrued facilities impairment charge of approximately $573,000 related to our west coast facility, and accrued restructuring charge of approximately $111,000 related to our prior facility in Waltham, Massachusetts. These uses of cash were partially offset by increases in accrued expenses and other current liabilities of approximately $2,632,000 related to higher accrued sales reserves and allowances related to a sample card promotional program, higher deferred revenue of approximately $311,000, higher accrued other long term liabilities of approximately $304,000 and decreases in interest receivable of approximately $125,000 due to lower overall cash balances. Additional offsets include lower inventories balances of approximately $1,255,000 due to higher shipments and lower prepaid expense and other current assets of approximately $777,000 related to decreased prepaid marketing costs for the three month period ended March 31, 2006. Offsetting our operating uses of cash were non-cash depreciation and amortization expenses of approximately $1,379,000, stock-based compensation of $1,098,000, provision for excess and obsolete inventories of approximately $23,000 as well as non-cash interest expenses of approximately $366,000.

Cash used in our operating activities for three month period ended March 31, 2005 was primarily a result of our net loss of approximately $27,857,000, increases in inventory of approximately $2,981,000 due to anticipated increased demand of FACTIVE tablets in the second half of the year as well as prepaid expenses and other current assets of approximately $2,485,000 related to an up-front payment to our contracted sales organization of approximately $1,778,000 and prepaid business insurance and other expenses of approximately $707,000. Cash used in our operating activities was also a result of decreases in accounts payable of approximately $1,568,000, deferred revenues of approximately $389,000 related to our initial stocking incentive program, accrued facilities impairment charge of approximately $703,000 related to our west coast facility, and accrued restructuring charge of approximately $511,000 related to our prior facility in Waltham, Massachusetts. These uses of cash were partially offset by increases in clinical trial expense accrual of approximately $1,756,000 related to the clinical trial of FACTIVE for the 5-day treatment of CAP and post marketing studies, accrued expenses and other current liabilities of approximately $1,514,000 related to higher accrued sales reserves and allowances of approximately $1,042,000, higher accrued convertible note interest of approximately $1,337,000, higher accrued other expenses of approximately $203,000 and lower accrued payroll related expenses of approximately $1,068,000. Offsetting our operating uses of cash were non-cash stock based compensation, depreciation and amortization expenses of approximately $2,279,000 as well as non-cash interest expenses of approximately $405,000.

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Our investing activities provided cash of approximately $2,710,000 and $45,056,000 for the three month periods ended March 31, 2006 and 2005, respectively. Cash provided by our investing activities for the three month period ended March 31, 2006 was primarily related to net proceeds from maturities of marketable securities of approximately $2,696,000 and proceeds from notes receivable of approximately $140,000. Cash provided from investing activities were partially offset by an increase in restricted cash of approximately $70,000 and an increase in other assets of approximately $56,000.

Cash provided by our investing activities for the three month period ended March 31, 2005 was primarily related to net proceeds from maturities of marketable securities of approximately $46,665,000, proceeds from sales of property and equipment of approximately $135,000 and a decrease in other assets of approximately $14,000. Cash provided by investing activities were partially offset by the issuance of notes receivable of approximately $1,387,000, purchases of property and equipment of approximately $339,000 and an increase in restricted cash of approximately $32,000.

Capital expenditures totaled approximately $339,000 for the three month periods ended March 31, 2005 primarily consisting of purchases of computer and related equipment as well as office furniture and leasehold improvements for the new office facilities.

Our financing activities provided cash of approximately $570,000 for the three month period ended March 31, 2006, primarily due to proceeds from exercise of 82,524 stock options of approximately $122,000 and proceeds from the issuance of 232,110 shares of stock under the employee stock purchase plan of approximately $448,000.

Our financing activities provided cash of approximately $261,000 for the three month period ended March 31, 2005, primarily due to proceeds from exercise of 650,107 stock options of $353,000 and proceeds from the issuance of 64,532 shares of stock under the employee stock purchase plan of $200,000 offset by payments of current portion of long-term obligations of approximately $292,000.

At December 31, 2005, we had net operating loss carryforwards of approximately $377,305,000 and $278,981,000 available to reduce federal and state taxable income respectively, if any. In addition, we also had tax research credit carryforwards of approximately $20,045,000 to reduce federal and state income tax, if any. Net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain cumulative changes in ownership interests of significant shareholders over a three-year period in excess of 50%. Additionally, certain of our losses have begun to expire due to time, not limitations.

Our Outstanding Debt Obligations and Equity Financings

In the quarter ended June 26, 2004, we issued $152,750,000 in principal amount of our 3.5% senior convertible promissory notes due April 2011. These notes are convertible into shares of our common stock at the option of the holders at a conversion price of approximately $6.64 per share. We may not elect to redeem the notes before May 10, 2010. After this date, we can redeem all or a part of the notes for cash at a price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest. Upon the occurrence of a termination of trading of our common stock or a change of control transaction in which substantially all of our common stock is exchanged for consideration other than common stock that is listed on a U.S. national securities exchange or market (such as NASDAQ), holders of these notes have the right to require us to repurchase all or any portion of their notes at a price equal to 100% of the principal amount plus accrued and unpaid interest. In addition, in the case of a change of control transaction in which all of the consideration paid for our common stock consists of cash, we may have an obligation to pay an additional make-whole premium to the note holders based on a formula set forth in the indenture.

On February 6, 2004, in connection with our merger with Genesoft, we issued $22,309,647 in principal amount of our 5% convertible five year promissory notes which were recorded in investing activities as cash flows related to acquisition. These notes are convertible into our common stock at the option of the holders, at a conversion price of approximately $6.64 per share (subject to anti-dilution and other adjustments). In addition, we have the right to force conversion if the price of our common stock closes above 150% of the then effective conversion price for 15 consecutive trading days. At the closing of the merger, the holders of these notes also received an aggregate of 4,813,547 shares of our common stock representing the payment of accrued interest and related amounts on certain outstanding notes previously issued to such holder by Genesoft. On February 6, 2004, in conjunction with the merger with Genesoft, we sold 16.8 million shares of our common stock at $5.25 per share resulting in proceeds received of approximately $81 million, net of issuance costs.

On April 11, 2006, we closed a private placement of our common stock with institutional and other accredited investors pursuant to which we sold an aggregate of 18,035,216 shares of our common stock at a price of $1.93 per share and warrants

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to purchase 9,017,608 shares of common stock at a price of $0.125 per share of common stock issuable pursuant to such warrants. The warrants have an exercise price of $2.22 per share and a term of five years.

Contractual Obligations

For the three month period ended March 31, 2006, there were no material changes to our contractual obligations outside the ordinary course of business.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks, and the ways we manage them, are summarized under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk”, each included in our Form 10-K for the year ended December 31, 2005. There have been no material changes in information affecting our market risk since the end of the fiscal year ended December 31, 2005. Our Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 10, 2006.

ITEM 4: CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Securities and Exchange Commission (“SEC”) Rule 13a-15(e) as of the end of the period covered by this report. Based upon that evaluation, management has concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

During the period covered by this report, there have been no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A RISK FACTORS

Some of the important risk factors that could cause our actual results to differ materially from those expressed in our forward-looking statements include, but are not limited to, the following:

RISKS RELATED TO OUR BUSINESS

We have a history of significant operating losses and expect these losses to continue in the future.

We have experienced significant operating losses each year since our inception and expect these losses to continue for the foreseeable future. We had a net loss of approximately $88,593,000 for the fiscal year ended December 31, 2005 and had an accumulated deficit of approximately $337,428,000. The losses have resulted primarily from costs incurred in research and development, including our clinical trials, from sales and marketing, and from general and administrative costs associated with our operations and product sales of FACTIVE tablets. These costs have exceeded our revenues which to date have been generated principally from sales of FACTIVE, co-promotion revenues based on the sale of TESTIM gel, collaborations, government grants and sequencing services.

We anticipate that we will incur additional losses in the current year and in future years and cannot predict when, if ever, we will achieve profitability. These losses are expected to continue and potentially increase as we continue significant levels of expenditures, principally in the sales and marketing area as we seek to grow sales of FACTIVE tablets and continue the co-promotion of TESTIM gel and in research and development in connection with clinical trials and formulation activities to support the existing labeling of FACTIVE tablets, the expansion of FACTIVE labeling claims and the development of Ramoplanin. In addition, our partners’ product development efforts which utilize our genomic discoveries are at an early stage and, accordingly, we do not expect our losses to be substantially mitigated by revenues from milestone payments or royalties under those agreements for a number of years, if ever.

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Our business will be very dependent on the commercial success of FACTIVE and TESTIM.

FACTIVE tablets and TESTIM gel are currently our only commercial products and we expect that they will likely account for substantially all of our product revenues for at least the next several years.

FACTIVE tablets have FDA marketing approval for the treatment of community-acquired pneumonia of mild to moderate severity, or CAP, and acute bacterial exacerbations of chronic bronchitis, or AECB. TESTIM gel has been approved by the FDA for the treatment of male hypogonadism. The commercial success of FACTIVE and TESTIM will depend upon their continued acceptance by regulators, physicians, patients and other key decision-makers as a safe, therapeutic and cost-effective alternative to other products used, or currently being developed, to treat CAP and AECB, in the case of FACTIVE tablets, or male hypogonadism, in the case of TESTIM gel. The commercial success of TESTIM gel is also dependent, in part, on the marketing and detailing efforts of Auxilium, which efforts are beyond our control. If FACTIVE and TESTIM are not commercially successful, we will have to find additional sources of funding or curtail or cease operations.

We will likely need to raise additional funds in the future.

We believe our existing funds and anticipated cash flows from operations would be sufficient to support our current plans for the next 18 months. We will likely raise additional capital in the future to fund our operations, in particular, to support our sales and marketing activities, fund clinical trials and other research and development activities, and other potential commercial or development opportunities. We may seek funding through additional public or private equity offerings, debt or other strategic financings or agreement with customers or vendors. In order to facilitate the raising of additional funds, we have filed a shelf registration statement that allows us to sell up to $100,000,000 of our common stock. Our ability to raise additional capital, however, will be heavily influenced by, among other factors, the investment market for biopharmaceutical companies and the progress of the FACTIVE, TESTIM and Ramoplanin commercial and clinical development programs. Additional financing may not be available to us when needed, or, if available, may not be available on favorable terms. If we cannot obtain adequate financing on acceptable terms when such financing is required, our business will be adversely affected.

Future fund raising could dilute the ownership interests of our stockholders.

In order to raise additional funds, we may issue equity or convertible debt securities in the future. Depending upon the market price of our shares at the time of any transaction, we may be required to sell a significant percentage of the outstanding shares of our common stock in order to fund our operating plans, potentially requiring a stockholder vote. In addition, we may have to sell securities at a discount to the prevailing market price, resulting in further dilution to our stockholders.

We will need to continue to develop marketing and sales capabilities to successfully commercialize FACTIVE tablets, TESTIM and our other product candidates.

FACTIVE tablets are our first FDA approved product. To date, we still have limited marketing and sales experience. The launch of FACTIVE occurred in September of 2004 and the co-promotion of TESTIM gel began in May 2005. The continued development of these marketing and sales capabilities, including the expansion of our sales force, will require significant expenditures, management resources and time. Further, as part of this development, we may seek to establish a co-promotion partnership in the future to expand FACTIVE commercialization in the U.S. or in our other licensed territories and/or acquire additional products for our expanded sales force. However, there is no assurance that we will be able to enter into a co-promotion agreement or acquire new products on favorable terms or at all. Failure to successfully establish sufficient sales and marketing capabilities in a timely and regulatory compliant manner or to find suitable sales and marketing partners may adversely affect our business and results of operations.

Our product and product candidates will face significant competition in the marketplace.

FACTIVE tablets are approved for the treatment of community-acquired pneumonia of mild to moderate severity and acute bacterial exacerbations of chronic bronchitis. There are several classes of antibiotics that are primary competitors for the treatment of these indications, including:

• other fluoroquinolones such as Levaquin^® (levofloxacin), a product of Ortho-McNeil Pharmaceutical, Inc., and Cipro^® (ciprofloxacin) and Avelox^® (moxifloxacin), both products of Bayer Corporation;

• macrolides such as Biaxin^® (clarithromycin), a product of Abbott Laboratories and Zithromax^® (azithromycin), a product of Pfizer Inc., as well as generic equivalents of Zithromax;

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• Ketek^® (telithromycin), a ketolide from Sanofi-Aventis Pharmaceuticals; and

• penicillins such as Augmentin^® (amoxicillin/clavulanate potassium), a product of GlaxoSmithKline, as well as generic equivalents of this product.

Many generic antibiotics are also currently prescribed to treat these infections. Moreover, a number of the antibiotic products that are competitors of FACTIVE tablets have gone or will be going off patent at dates ranging from 2003 to 2015. As these competitors lose patent protection, their manufacturers will likely decrease their promotional efforts. However, makers of generic drugs will likely begin to produce some of these competing products and this could result in pressure on the price at which we are able to sell FACTIVE tablets and reduce our profit margins.

The primary competition for TESTIM gel for the treatment of male hypogonadism is ANDROGEL^®, marketed by Solvay Pharmaceuticals. ANDROGEL was launched approximately three years before TESTIM and, according to NDC, has a much larger share of the testosterone gel market than TESTIM gel accounting for approximately 56% of total testosterone prescriptions for the twelve months ending March 31, 2006. TESTIM gel also competes with other forms of testosterone replacement therapies, or TRT, such as oral treatments, patches, injectables and a buccal tablet. Generally, testosterone gels are more expensive than patches and injectables. ANDRODERM^® is a transdermal testosterone patch marketed by Watson Pharmaceuticals. ANDRODERM is the leading patch product and accounted for approximately 10% of total testosterone prescriptions for the twelve months ending March 31, 2006. Other new treatments are being sought for TRT which may compete with TESTIM gel.

We are also aware that Watson Pharmaceuticals filed an abbreviated New Drug Application (ANDA) for generic ANDROGEL which was approved by the FDA on January 27, 2006. Par Pharmaceutical has also filed an ANDA with the FDA for generic ANDROGEL for which its partner, Paddock Laboratories, received tentative approval on November 1, 2004. Solvay Pharmaceuticals has filed patent infringement lawsuits against these two companies. In January 2006, the thirty-month stay in each patent action expired. If one of the companies chooses to market their product, this would result in increased competition for TESTIM, most likely at lower prices. Other pharmaceutical companies may develop generic versions of any products that we commercialize that are not subject to patent protection or other proprietary rights. Governmental and other cost containment pressures may result in physicians writing prescriptions for these generic products.

Ramoplanin is in clinical development for the treatment of Clostridium difficile-associated disease (CDAD). We are aware of two products currently utilized in the marketplace—Vancocin^® pulvules (vancomycin), a product marketed by ViroPharma, and metronidazole, a generic product—for treatment of this indication. We are also aware of at least eight companies with products in development for the treatment of CDAD. It is also possible that other companies are developing competitive products for this indication.

Additionally, we are aware that Vicuron and Novartis AG are jointly developing PDF inhibitor agents that may compete with any PDF products developed by our company.

All of our other internal product programs are in earlier stages and have not yet reached clinical development and are not yet indication specific. Our alliance-related product development programs are also all in preclinical stages, and it is therefore not possible to identify any product profiles or competitors for these product development programs at this time. Our industry is very competitive and it therefore is likely that if and when product candidates from our early stage internal programs or our alliance programs reach the clinical development stage or are commercialized for sale, these products will also face competition.

Many of our competitors will have substantially greater capital resources, facilities and human resources than us. Furthermore, many of those competitors are more experienced than us in drug discovery, clinical development and commercialization, and in obtaining regulatory approvals. As a result, those competitors may discover, develop and commercialize pharmaceutical products or services before us. In addition, our competitors may discover, develop and commercialize products or services that are more effective than, or otherwise render non-competitive or obsolete, the products or services that we or our collaborators are seeking to develop and commercialize. Moreover, these competitors may obtain patent protection or other intellectual property rights that would limit our rights or the ability of our collaborators to develop or commercialize pharmaceutical products or services.

We cannot expand the indications for which we will market FACTIVE unless we receive FDA approval for each additional indication. Failure to expand these indications will limit the size of the commercial market for FACTIVE.

In April 2003, FACTIVE tablets were approved by the FDA for the seven-day treatment of community-acquired pneumonia of mild to moderate severity (CAP) and the five-day treatment of acute bacterial exacerbations of chronic bronchitis (AECB).

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The original owner of rights to FACTIVE in the U.S. submitted a New Drug Application for FACTIVE for the treatment of several indications, including ABS, and received a non-approvable letter in December 2000. In November of 2005, we submitted a supplemental New Drug Application (sNDA) to the FDA seeking approval for the use of FACTIVE for the five-day treatment of ABS and the five-day treatment of CAP. On January 19, 2006, the FDA accepted for filing our sNDA for five-day CAP but refused to accept the sNDA filing for ABS. Acceptance for filing of five-day CAP does not ensure approval. In its refusal to accept the sNDA filing for ABS, the FDA indicated that FACTIVE did not exhibit an acceptable risk versus benefit profile for the ABS indication. In addition, the FDA expressed the opinion that demonstrating an acceptable risk versus benefit profile for FACTIVE in ABS was not feasible, given the FDA’s view of the potential risk of rash in those patients. As part of the process to address the FDA’s concerns related to this indication, we met with officials at the FDA to continue the dialogue regarding appropriate subsequent actions. Following these discussions, we requested that the FDA file the sNDA over protest. The FDA has now filed the sNDA over protest and we expect a response from the FDA on the ABS sNDA by the end of 2006. Given the FDA’s original decision to refuse to accept for filing the sNDA for the treatment of ABS, we cannot guarantee that the ABS indication will ever be approved by the FDA.

The FDA has granted a standard ten-month review period for the five-day CAP sNDA. We cannot be certain whether additional data will be required, if we will be required to conduct additional clinical trials or if the five-day CAP sNDA will ultimately be approved. In order to market FACTIVE for other indications, we may need to conduct additional clinical trials, obtain positive results from those trials and obtain FDA approval for such proposed indications. If we are unsuccessful in expanding the approved indications for the use of FACTIVE, the size of the commercial market for FACTIVE will be limited.

Our failure to acquire and develop additional product candidates or approved products will impair our ability to grow.

As part of our growth strategy, we intend to acquire, develop and commercialize additional product candidates or approved products. The success of this strategy depends upon our ability to identify, select and acquire biopharmaceutical products that meet our criteria. We may not be able to acquire the rights to additional product candidates and approved products on terms that we find acceptable, or at all. The acquisition of rights to additional products would likely require us to make significant upfront cash payments which could adversely affect our liquidity and/or accelerate our need to raise additional capital.

New product candidates acquired or in-licensed by us may require additional research and development efforts prior to commercial sale, including extensive preclinical and/or clinical testing and approval by the FDA and corresponding foreign regulatory authorities. All product candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be safe, effective or approved by regulatory authorities. In addition, it is uncertain whether any approved products that we develop or acquire will be:

• manufactured or produced economically;

• successfully commercialized; or

• widely accepted in the marketplace

Seasonal fluctuations in demand for FACTIVE may cause our operating results to vary significantly from quarter to quarter.

We expect demand for FACTIVE to be highest between November 1 and March 31 as the incidence of respiratory tract infections, including CAP and AECB, tend to increase during the winter months. In addition, fluctuations in the severity of the annual respiratory tract infection season may cause our product sales to vary from year to year. Due to these seasonal fluctuations in demand, our results in any particular quarter may not be indicative of the results for any other quarter or for the entire year.

We as well as our partners are subject to numerous complex regulatory requirements and failure to comply with these regulations, or the cost of compliance with these regulations, may harm our business.

The testing, development and manufacturing and distribution of our products are subject to regulation by numerous governmental authorities in the U.S., Europe, Mexico and elsewhere. These regulations govern or affect the testing, manufacture, safety, labeling, storage, record-keeping, approval, distribution, advertising and promotion of FACTIVE, TESTIM, Ramoplanin and our other product candidates, as well as safe working conditions and the experimental use of animals. Noncompliance with any applicable regulatory requirements can result in refusal of the government to approve products for marketing, criminal prosecution and fines, recall or seizure of products, total or partial suspension of production, prohibitions or limitations on the commercial sale of products or refusal to allow the entering into of federal and state supply contracts. The U.S. government agencies include, but are not limited to, the FDA, the Office of Inspector General and the Department of Justice. Our corporate compliance program cannot ensure that we are in compliance with all applicable laws

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and regulations, and a failure to comply with such regulations or a failure to prevail in litigation related to noncompliance could harm our business.

The FDA and comparable governmental authorities have the authority to withdraw product approvals that have been previously granted. Currently, there is a substantial amount of congressional and administrative review of the FDA and the regulatory approval process for drug candidates in the U.S. As a result, there may be significant changes made to the regulatory approval process in the U.S. In addition, the regulatory requirements relating to the manufacturing, testing, and promotion, marketing and distribution of our products may change in the U.S. or the other jurisdictions in which we may have obtained or be seeking regulatory approval for our products or product candidates. Such changes may increase our costs and adversely affect our operations.

In addition, pharmaceutical companies have faced lawsuits and investigations pertaining to violations of health care “fraud and abuse” laws, such as the federal false claims act, the federal anti-kickback statute, and other state and federal laws and regulations. While we have developed and implemented a corporate compliance program based upon what we believe are current best practices, we cannot guarantee that this program will protect us from future lawsuits or investigations.

Failure to comply with or changes to the regulatory requirements that are applicable to FACTIVE, TESTIM or our other product candidates may result in a variety of consequences, including the following:

• restrictions on our products or manufacturing processes;

• warning letters regarding promotional and marketing materials and activities;

• withdrawal of FACTIVE, TESTIM or a product candidate from the market;

• voluntary or mandatory recall of FACTIVE, TESTIM or a product candidate;

• fines against us or our partners;

• suspension or withdrawal of regulatory approvals for FACTIVE, TESTIM or a product candidate;

• suspension or termination of any of our ongoing clinical trials of a product candidate;

• refusal to permit import or export of our products;

• refusal to approve pending applications or supplements to approved applications that we or our partners submit;

• denial of permission to file an application or supplement in a jurisdiction;

• product seizure; and

• injunctions or the imposition of civil or criminal penalties against us or our partners.

Testosterone is classified by the U.S. Drug Enforcement Agency as a controlled substance and our failure or Auxilium’s failure to comply with these heightened regulations could harm our business.

TESTIM gel contains testosterone which is listed by the U.S. Drug Enforcement Agency, or DEA, as a Schedule III substance under the Controlled Substances Act of 1970. The DEA classifies substances as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. Scheduled substances are subject to DEA regulations relating to manufacturing, storage, distribution and physician prescription procedures. Auxilium must register annually with the DEA to manufacture, distribute, dispense, import, export, and conduct research using controlled substances. State controlled substance laws also require registration for similar activities. In addition, the DEA requires entities handling controlled substances to maintain records and file reports, follow specific labeling and packaging requirements, and provide appropriate security measures to control against diversion of controlled substances. Failure to follow these requirements can lead to significant civil and/or criminal penalties and possibly even lead to a revocation of a DEA registration.

In addition, products containing controlled substances may generate public controversy. As a result, these products may have their marketing rights or regulatory approvals withdrawn. Political pressures and adverse publicity could lead to delays in, and increased expenses for, and limit or restrict the marketing of TESTIM gel. Such delays, restrictions or expenses could harm our business.

If testosterone replacement therapies are perceived to create or do create health risks, sales of TESTIM may be adversely affected.

Recent studies of female hormone replacement therapy products have reported an increase in health risks. As a result of such studies, some companies that sell or develop female hormone replacement products have experienced decreased sales of these products, and in some cases, a decline in the value of their stock. Publications have, from time to time, suggested

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potential health risks associated with testosterone replacement therapy, or TRT. Potential health risks were described in various articles, including a 2002 article published in Endocrine Practice and a 1999 article published in the International Journal of Andrology. The potential health risks detailed were fluid retention, sleep apnea, breast tenderness or enlargement, increased red blood cells, development of clinical prostate disease, increased cardiovascular disease risk and the suppression of sperm production. It is possible that studies on the effects of TRT could demonstrate these or other health risks. This, as well as negative publicity about the risks of hormone replacement therapy, including TRT, could adversely affect patient or prescriber attitudes and impact TESTIM sales.

Sales of TESTIM will be highly dependent upon physician acceptance of testosterone replacement therapy for the treatment of hypogonadism.

TESTIM gel is a testosterone replacement therapy, or TRT, approved for the treatment of hypogonadism, a disorder that affects approximately 20% of the U.S. male population over age 50. However, only about 5% of hypogonadal men currently receive TRT to treat their condition. Significant effort may be necessary to educate physicians, particularly primary care physicians, regarding the benefits of TRT for hypogonadal men. If TRT does not gain wider acceptance among physicians for the treatment of hypogonadism, the growth of TESTIM sales could be adversely affected.

We will depend on third parties to manufacture and distribute our products and product candidates, including FACTIVE tablets, TESTIM and Ramoplanin.

We do not have the internal capability to manufacture pharmaceutical products. Under our agreement with LG Life Sciences, LG Life Sciences manufactures bulk quantities of the active pharmaceutical ingredient of FACTIVE, and we use Patheon to produce the finished FACTIVE tablets. The co-promotion agreement for TESTIM gel provides that Auxilium is responsible for the manufacture and distribution of TESTIM gel. TESTIM gel is currently manufactured for Auxilium by DPT Laboratories. Although the LG Life Sciences and DPT Laboratories facilities have previously been inspected by the FDA, future inspections may find deficiencies in the facilities or processes that may delay or prevent the manufacture or sale of our products.

Auxilium’s contract with DPT Laboratories to manufacture TESTIM gel expires on December 31, 2010. Although Auxilium is currently in the process of qualifying a back-up supplier to manufacture TESTIM gel, there is currently no alternative manufacturer of TESTIM gel. If there is significant delay in qualifying this back-up supplier, there could be future supply shortages of TESTIM gel. Auxilium also relies on third party suppliers for their supply of testosterone and pentadecalactone, or CPD, two key ingredients of TESTIM gel. Testosterone is available to Auxilium from only two sources. Auxilium relies exclusively on one outside source for their supply of CPD. Auxilium does not have any agreements with these suppliers regarding these key ingredients. If either of the two sources that produce testosterone stops manufacturing it, or if Auxilium is unable to procure testosterone on commercially favorable terms, Auxilium may be unable to continue to produce TESTIM on commercially viable terms, if at all. In addition, if Auxilium’s third-party source of CPD stops manufacturing pharmaceutical grade CPD, or does not make CPD available to Auxilium on commercially favorable terms, Auxilium may be unable to continue to produce TESTIM on commercially viable terms, if at all. Furthermore, the limited number of suppliers of testosterone and CPD may provide such companies with greater opportunity to raise their prices. Any increase in price for testosterone or CPD may reduce the gross margins on sales of TESTIM gel.

Pursuant to our recent acquisition from Vicuron of worldwide rights to Ramoplanin, we assumed all responsibility for manufacture of Ramoplanin and are currently in discussions with potential third-party manufacturers for Ramoplanin in order to secure long term product supply. If there is a significant delay in securing a qualified supplier on commercially favorable terms or a delay in the technology transfer from Vicuron, we could experience a supply shortage of Ramoplanin bulk drug, affecting our ability to complete the anticipated Phase III clinical program and/or begin commercialization of Ramoplanin.

We cannot be certain that LG Life Sciences, DPT Laboratories, Patheon or future manufacturers will be able to deliver commercial quantities of product or that such deliveries will be made on a timely basis. The only source of supply for FACTIVE bulk drug substance is LG Life Sciences’ facility in South Korea, and Patheon is currently our only source of finished FACTIVE tablets. DPT Laboratories is currently the only qualified manufacturer of TESTIM gel. If these facilities are damaged or otherwise unavailable, we could incur substantial costs and delay in the commercialization of our products. Depending upon our discussions regarding a long term source supplier for Ramoplanin or other product candidates, we could also incur substantial costs and delays in the further commercialization of such products. We may not be able to enter into alternative supply arrangements at commercially acceptable rates, if at all. Also, if we change the source or location of supply or modify the manufacturing process, regulatory authorities will require us to demonstrate that the product produced by the new source or from the modified process is equivalent to the product used in any clinical trials that we had conducted.

Moreover, while we may choose to manufacture products in the future, we have no experience in the manufacture of pharmaceutical products for clinical trials or commercial purposes. If we decide to manufacture products, it would be subject

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to the regulatory requirements described above. In addition, we would require substantial additional capital and would be subject to delays or difficulties encountered in manufacturing pharmaceutical products. No matter who manufactures the products, we will be subject to continuing obligations regarding the submission of safety reports and other post-market information.

We will depend on third parties to manage our product supply chain for FACTIVE tablets and TESTIM.

We do not have the internal capability to perform product supply chain services including warehousing, inventory management and distribution of commercial and sample quantities of FACTIVE tablets. We have an exclusive arrangement with Integrated Commercial Solutions, Inc. (ICS) to perform such supply chain manufacturing services for a three-year period. Under our agreement with Auxilium, Auxilium provides all supply chain services for TESTIM gel.

We cannot be certain that ICS and Auxilium will be able to perform uninterrupted supply chain services. If ICS or Auxilium were unable to perform their services for any period, we may incur substantial loss of sales to wholesalers and other purchasers of our products. If we are forced to find an alternative supply chain service provider for FACTIVE tablets, in addition to loss of sales, we may also incur costs in establishing a new arrangement.

Wholesalers, pharmacies and hospitals may not maintain adequate distribution for our products.

We sell FACTIVE to wholesale drug distributors who generally sell products to retail pharmacies and other institutional customers. We do not promote FACTIVE to these wholesalers, and they do not determine FACTIVE prescription demand. However, approximately 81% of our product shipments during 2005 were to only two wholesalers. Our ability to commercialize FACTIVE tablets will depend, in part, on the extent to which we maintain adequate distribution of FACTIVE tablets via wholesalers, pharmacies and hospitals, as well as other customers. Although a majority of the larger wholesalers and retailers distribute and stock FACTIVE tablets, they may be reluctant to do so in the future if demand is not established. Further, it is possible that wholesalers could decide to change their policies or fees, or both, at some time in the future. This could result in their refusal to distribute smaller volume products, or cause higher product distribution costs, lower margins or the need to find alternative methods of distributing products. Such alternative methods may not exist or may not be economically viable. If we do not maintain adequate distribution of FACTIVE tablets, the commercialization of FACTIVE and our anticipated revenues and results of operations could be adversely affected.

The development and commercialization of our products may be terminated or delayed, and the costs of development and commercialization may increase, if third parties who we rely on to support the development and commercialization of our products do not fulfill their obligations.

In addition to using third parties to fulfill our manufacturing, distribution and supply chain services, our development and commercialization strategy entails entering into arrangements with corporate collaborators, contract research organizations, licensors, licensees and others to conduct development work, manage our clinical trials and market and sell our products outside of the United States. We will not have the expertise or the resources to conduct such activities on our own and, as a result, we will be particularly dependent on third parties in these areas. For instance, in February 2006, we entered into a sublicense arrangement with Pfizer, S.A. de C.V. (Pfizer Mexico), whereby Pfizer Mexico will commercialize FACTIVE tablets in Mexico in exchange for which Pfizer Mexico made an up-front payment, and will pay milestones upon obtaining certain regulatory approvals and sales goals as well as royalties on future sales.

We may not be able to maintain our existing arrangements with respect to the commercialization of our existing products, FACTIVE and TESTIM, or establish and maintain arrangements to develop and commercialize Ramoplanin or any additional product candidates or products we may acquire on terms that are acceptable to us. Any current or future arrangements for development and commercialization may not be successful. If we are not able to establish or maintain agreements relating to our current products, Ramoplanin or any additional products we may acquire on terms which we deem favorable, our results of operations would be materially adversely affected.

Third parties may not perform their obligations as expected. The amount and timing of resources that third parties devote to developing and commercializing our products are not within our control. Furthermore, our interests may differ from those of third parties that commercialize our products. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive.

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If any third party that supports the development or commercialization of our products breaches or terminates its agreement with us, or fails to conduct its activities in a timely and regulatory compliant manner, such breach, termination or failure could:

• delay or otherwise adversely impact the development or commercialization of FACTIVE tablets, TESTIM, Ramoplanin, our other product candidates or any additional product candidates that we may acquire or develop;

• require us to undertake unforeseen additional responsibilities or devote unforeseen additional resources to the development or commercialization of our products; or

• result in the termination of the development or commercialization of our products.

Clinical trials are costly, time consuming and unpredictable, and we have limited experience conducting and managing necessary preclinical and clinical trials for our product candidates.

The Phase II trial for our product candidate, Ramoplanin, to assess the safety and efficacy of treating Clostridium difficile-associated disease, or CDAD, was completed in 2004. We have engaged a contract clinical research organization and started the process of assessing sites in advance of the start of the Phase III studies. Prior clinical and preclinical trials for Ramoplanin were conducted by Vicuron and its licensees, from whom we acquired rights to Ramoplanin. We may not be able to complete future trials or make the filings within the timeframes we currently expect. If we are delayed in completing the trials or making the filings, our business may be adversely affected.

We are currently conducting a Phase IV post-approval clinical trial relating to FACTIVE tablets in compliance with FDA requirements pursuant to the product’s approval. Further, depending upon our discussions with the FDA regarding the ABS indication, we may need to conduct additional trials. Such trials would entail significant time and expense and the FDA has indicated doubt as to the likelihood of their success. Additionally, clinical trials may be necessary to gain approval to market the product for the treatment of other indications.

We may not be able to demonstrate the safety and efficacy of FACTIVE in indications other than those for which it has already been approved or of our other products including Ramoplanin, in each case, to the satisfaction of the FDA, or other regulatory authorities. We may also be required to demonstrate that our proposed products represent an improved form of treatment over existing therapies and we may be unable to do so without conducting further clinical studies. Negative, inconclusive or inconsistent clinical trial results could prevent regulatory approval, increase the cost and timing of regulatory approval or require additional studies or a filing for a narrower indication.

The speed with which we are able to complete our clinical trials and our applications for marketing approval will depend on several factors, including the following:

• the rate of patient enrollment, which is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the nature of the protocol;

• fluctuations in the infection rates for patients available to enroll in our trials;

• compliance of patients and investigators with the protocol and applicable regulations;

• prior regulatory agency review and approval of our applications and procedures;

• analysis of data obtained from preclinical and clinical activities which are susceptible to varying interpretations, which interpretations could delay, limit or prevent regulatory approval;

• changes in the policies of regulatory authorities for drug approval during the period of product development; and

• the availability of skilled and experienced staff to conduct and monitor clinical studies, to accurately collect data and to prepare the appropriate regulatory applications.

In addition, the cost of human clinical trials varies dramatically based on a number of factors, including the order and timing of clinical indications pursued, the extent of development and financial support from alliance partners, the number of patients required for enrollment, the difficulty of obtaining clinical supplies of the product candidate, and the difficulty in obtaining sufficient patient populations and clinicians.

We have limited experience in conducting and managing the preclinical and clinical trials necessary to obtain regulatory marketing approvals. We may not be able to obtain the approvals necessary to conduct clinical studies. Also, the results of our clinical trials may not be consistent with the results obtained in preclinical studies or the results obtained in later phases of clinical trials may not be consistent with those obtained in earlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in early animal and human testing.

Even if a product gains regulatory approval, the product and the manufacturer of the product will be subject to continuing regulatory review, including the requirement to conduct post-approval clinical studies. We may be restricted or

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prohibited from marketing or manufacturing a product, even after obtaining product approval, if previously unknown problems with the product or its manufacture are subsequently discovered.

Results related to post-marketing studies could restrict our ability to commercialize FACTIVE tablets.

In December 2000, the FDA issued a non-approvable letter to the prior owner of rights to FACTIVE due, in part, to safety concerns arising out of an increased rate of rash relative to comparator drugs, especially in young women. While the FDA did approve FACTIVE tablets for marketing in April 2003, it required, as a post-marketing study commitment, that we conduct a prospective, randomized study comparing FACTIVE tablets (5,000 patients) to an active comparator (2,500 patients) in patients with CAP or AECB. This study includes patients of different ethnicities to gain safety information in populations not substantially represented in the existing clinical trial program, specifically as it relates to rash. Patients will be evaluated for clinical and laboratory measures of safety. This Phase IV trial, with the approval from the FDA, was initiated in the second half of 2004. In connection with the approval of FACTIVE tablets, the FDA has also required us to perform a utilization study to obtain data on the prescribing patterns and use of FACTIVE tablets for the first three years after initial marketing in the U.S. As part of this requirement, we furnish interim reports to the FDA annually on the number of prescriptions issued, including refills, and the diagnoses for which the prescriptions are dispensed. The results of the Phase IV trial and the utilization study that we are required to provide to the FDA, as well as other safety information arising out of post-marketing safety surveillance, could restrict our ability to commercialize FACTIVE tablets.

Our intellectual property protection and other protections may be inadequate to protect our products.

Our success will depend, in part, on our ability to obtain commercially valuable patent claims and protect our intellectual property. We currently own or license approximately 69 issued U.S. patents, approximately 90 pending U.S. patent applications, 156 issued foreign patents and approximately 213 pending foreign patent applications. These patents and patent applications primarily relate to (1) the chemical composition, use, and method of manufacturing FACTIVE, (2) metalloenzyme inhibitors, their uses, their targets, (3) anti-infective compounds and their uses, and (4) the field of human and pathogen genetics. Our material patents are as follows:

• U.S. Patent No. 5,633,262 granted May 27, 1997, relating to quinoline carboxylic acid derivatives having 7-(4-amino-methyl-3-oxime) pyrrolidine substituent; licensed from LG Life Sciences; expiring June 15, 2015;

• U.S. Patent No. 5,776,944 granted July 7, 1998, relating to 7-(4-aminomethyl-3-methyloxyiminopyrroplidin-1-yl)-1-cyclopropyl-6-fluoro-4-oxo-1,4-dihydro-1, 8-naphthyridine-3-carboxylic acid; licensed from LG Life Sciences; expiring April 4, 2017;

• U.S. Patent No. 5,869,670 granted February 9, 1999, relating to 7-(4-aminomethyl-3-methyloxyiminopyrrolidin-1-yl)-1-cyclopropyl-6-fluoro-4-oxo-1,4-dihydro-1, 8-naphthyridine-3-carboxylic acid; licensed from LG Life Sciences; expiring June 15, 2015;

• U.S. Patent No. 5,962,468 granted October 5, 1999, relating to 7-(4-aminomethyl-3-methyloxyiminopyrrolidin-1-yl)-1-cyclopropyl-6-fluoro-4-oxo-1,4-dihydro-1, 8-naphthyridine-3 carboxylic acid; licensed from LG Life Sciences; expiring June 15, 2015;

• U.S. Patent No. 6,340,689 granted January 22, 2002, relating to methods of using quinolone compounds against atypical upper respiratory pathogenic bacteria; licensed from LG Life Sciences; expiring September 14, 2019;

• U.S. Patent No. 6,262,071 granted July 17, 2001, relating to methods of using antimicrobial compounds against pathogenic Mycoplasma bacteria; licensed from LG Life Sciences; expiring September 21, 2019;

• U.S. Patent No. 6,331,550 granted December 18, 2001, relating to methods of using of quinolone compounds against anaerobic pathogenic bacteria; licensed from LG Life Sciences; expiring September 21, 2019;

• U.S. Patent No. 6,455,540 granted September 24, 2002, relating to methods of use of quinolone compounds against anaerobic pathogenic bacteria; licensed from LG Life Sciences; expiring September 21, 2019;

• U.S. Patent No. 6,723,734 granted April 20, 2004, relating to the salt of naphythyridine carboxylic acid derivative; licensed from LG Life Science; expiring March 20, 2018.

• U.S. Patent No. 6,803,376 granted October 12, 2004, relating to methods of use of quinolone compounds against pneumococcal pathogenic bacteria; licensed from LG Life Science; expiring September 21, 2019.

We are not currently involved in any litigation, settlement negotiations, or other legal action regarding patent issues and we are not aware of any patent litigation threatened against us. Our patent position involves complex legal and factual questions, and legal standards relating to the validity and scope of claims in the applicable technology fields are still evolving. Therefore, the degree of future protection for our proprietary rights is uncertain.

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Under our license agreement with LG Life Sciences, we obtained an exclusive license to develop and market gemifloxacin in certain territories. This license covers 18 issued U.S. patents and a broad portfolio of corresponding foreign patents and pending patent applications. These patents include claims that relate to the chemical composition of FACTIVE, methods of manufacturing and its use for the prophylaxis and treatment of bacterial infections. We have received a Notice of Final Determination from the U.S. PTO on our patent term extension application for U.S. Patent 5,776,944 extending its patent term 659 days to April 4, 2017. The U.S. patents are currently set to expire at various dates, ranging from 2018, in the case of the principal patents relating to FACTIVE tablets, to 2019.

We also have the exclusive right to use FACTIVE trademarks, trade names, domain names and logos in conjunction with the use or sale of the product in the territories covered by the license.

The patents to Ramoplanin, which we recently acquired from Pfizer Inc., include claims relating to methods of manufacturing Ramoplanin as well as methods increasing the yield of the active compound. We also have applications pending relating to various novel uses of Ramoplanin. The patent covering the chemical composition of Ramoplanin has expired. To provide additional protection for Ramoplanin, we rely on proprietary know-how relating to maximizing yields in the manufacture of Ramoplanin, and intend to rely on the five years of data exclusivity under the Hatch-Waxman Act in the U.S. and the ten years of market exclusively in Europe available through the European Commission.

The risks and uncertainties that we will face with respect to our patents and other proprietary rights include the following:

• the pending patent applications that we have filed or to which we have exclusive rights may not result in issued patents, may result in issued patents with narrower claims than anticipated or may take longer than expected to result in issued patents;

• the claims of any patents which are issued may be limited from those in the patent applications and may not provide meaningful protection;

• we may not be able to develop additional proprietary technologies that are patentable;

• the patents licensed or issued to us or our partners may not provide a competitive advantage;

• other companies may challenge patents licensed or issued to us or our partners;

• patents issued to other companies may harm our ability to do business;

• other companies may independently develop similar or alternative technologies or duplicate our technologies; and

• other companies may design around technologies we have licensed or developed.

We rely on Auxilium’s license of Bentley Pharmaceuticals’ intellectual property which provides limited patent protection for TESTIM.

Currently, TESTIM gel is not covered by composition of matter patents. Testosterone, the active ingredient in TESTIM gel, is off-patent and is included in competing testosterone replacement therapy products. The U.S. patent that Auxilium licenses from Bentley Pharmaceuticals relates to a key component of the formulation of TESTIM gel and expires in June 2008. Bentley has filed a new patent application relating to the formulation in the U.S. which, if issued, could provide additional patent protection for TESTIM gel. Moreover, patent prosecution, maintenance and enforcement of the Bentley patent portfolio as it relates to TESTIM gel is controlled by Auxilium. Accordingly, we may be unable to exercise the same degree of control over this intellectual property as we would over our internally developed intellectual property or intellectual property which we directly license. Without additional patent protection, generic competition of TESTIM gel could adversely affect our sales. Furthermore, Auxilium’s failure to perform under its license arrangement with Bentley could result in the termination of the license and our ability to market TESTIM gel.

We may infringe the intellectual property rights of third parties and may become involved in expensive intellectual property litigation.

The intellectual property rights of biopharmaceutical companies, including us, are generally uncertain and involve complex legal, scientific and factual questions. Our success in developing and commercializing biopharmaceutical products may depend, in part, on our ability to operate without infringing on the intellectual property rights of others and to prevent others from infringing on our intellectual property rights.

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There has been substantial litigation regarding patents and other intellectual property rights in the biopharmaceutical industry. We may become party to patent litigation or proceedings at the U.S. Patent and Trademark Office or a foreign patent office to determine our patent rights with respect to third parties which may include competitors in the biopharmaceutical industry. Interference proceedings in the U.S. Patent and Trademark Office or opposition proceedings in a foreign patent office may be necessary to establish which party was the first to discover such intellectual property. We may become involved in patent litigation against third parties to enforce our patent rights, to invalidate patents held by such third parties, or to defend against such claims. The cost to us of any patent litigation or similar proceeding could be substantial, and it may absorb significant management time. We do not expect to maintain separate insurance to cover intellectual property infringement. Our general liability insurance policy does not cover our infringement of the intellectual property rights of others. If infringement litigation against us is resolved unfavorably, we may be enjoined from manufacturing or selling certain of our products or services without a license from a third party. We may not be able to obtain such a license on commercially acceptable terms, or at all.

International patent protection is uncertain.

Patent law outside the United States is uncertain and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may participate in opposition proceedings to determine the validity of our or our competitors’ foreign patents, which could result in substantial costs and diversion of our efforts.

Our proprietary position may depend on our ability to protect our proprietary confidential information and trade secrets.

We rely upon certain proprietary confidential information, trademarks, unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We generally protect this information with confidentiality agreements that provide that all confidential information developed or made known to others during the course of the employment, consulting or business relationship shall be kept confidential except in specified circumstances. Agreements with employees provide that all inventions conceived by the individual while employed by us are our exclusive property. We cannot guarantee, however, that these agreements will be honored, that we will have adequate remedies for breach if they are not honored or that our proprietary confidential information and trade secrets will not otherwise become known or be independently discovered by competitors.

We will bear substantial responsibilities under our license agreement for FACTIVE, our co-promotion agreement for TESTIM and our sublicense agreement to Pfizer, S.A. de C.V., and there can be no assurance that we will successfully fulfill our responsibilities.

FACTIVE

We have an exclusive license from LG Life Sciences to develop and market FACTIVE in North America and France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. Under this agreement, we are responsible, at our expense and through consultation with LG Life Sciences, for the clinical and commercial development of FACTIVE in the countries covered by the license, including the conduct of clinical trials, the filing of drug approval applications with the FDA and other applicable regulatory authorities and the marketing, distribution and sale of FACTIVE in our territory. The agreement also requires a minimum sales commitment over a period of time, which if not met, would result in the technology being returned to LG Life Sciences. We believe that we are currently in compliance with our obligations under the agreement with LG Life Sciences, but there can be no assurance that we will be able to remain in compliance due to the limitations on our resources and the many risks of conducting clinical trials, as described above in “Clinical trials are costly, time consuming and unpredictable, and we have limited experience conducting and managing necessary preclinical and clinical trials for our product candidates” and the challenges inherent in the commercialization of new products as described above in “Our product candidates will face significant competition in the marketplace.”

LG Life Sciences has the obligation under the agreement to diligently maintain its patents and the patents of third parties to which it has rights that, in each case, relate to gemifloxacin, the active ingredient in FACTIVE tablets. We have the right, at our expense, to control any litigation relating to suits brought by a third party alleging that the manufacture, use or sale of gemifloxacin in its licensed field in the territories covered by the license infringes upon our rights. We also have the primary right to pursue actions for infringement of any patent licensed from LG Life Sciences under the license agreement within the territories covered by the license. If we elect not to pursue any infringement action, LG Life Sciences has the right to pursue it. The costs of any infringement actions are first paid out of any damages recovered. If we are the plaintiff, the

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remainder of the damages are retained by us, subject to our royalty obligations to LG Life Sciences. If LG Life Sciences is the plaintiff, the remainder of the damages are divided evenly between us and LG Life Sciences, subject to our royalty obligations to LG Life Sciences. The costs of pursuing any such action could substantially diminish our resources.

Further, in February 2006, we entered into a Sublicensing and Distribution Agreement with Pfizer, S.A. de C.V. whereby we sublicensed our rights to commercialize FACTIVE tablets in Mexico to Pfizer Mexico. Under this agreement, we are obligated to exclusively supply all active pharmaceutical ingredient for FACTIVE required by Pfizer Mexico in Mexico. We believe that, together with our manufacturing partners, we will be able to meet such supply and other obligations under the sublicense agreement but can make no assurances to that we will be able to remain in compliance with such responsibilities.

Auxilium

On April 11, 2005, we entered into an agreement with Auxilium granting us the exclusive right to co-promote TESTIM gel to primary care physicians in the U.S. Under this agreement we are obligated to share TESTIM promotional expenses to this audience equally with Auxilium. The agreement also requires minimum levels of annual physician detailing which, if not met, would allow Auxilium to terminate the agreement. The initial term of the agreement ends on April 30, 2007. We may extend the agreement for two consecutive two-year periods provided that certain milestones related to physician detailing, market share and gross sales have been met by us for each extension period. We believe that we are currently in compliance with our obligations under the Auxilium agreement, but there can be no assurance that we will be able to remain in compliance or that we will be able to meet the milestones required for extension of the agreement.

We will depend on key personnel in a highly competitive market for skilled personnel.

We will be highly dependent on the principal members of our senior management and key scientific and technical personnel. The loss of any of our personnel could have a material adverse effect on our ability to achieve our goals. We currently maintain employment agreements with the following senior officers: Steven M. Rauscher, President and Chief Executive Officer; Stephen Cohen, Senior Vice President and Chief Financial Officer; and Dominick Colangelo, Esq., Executive Vice President, Corporate Development and Operations. The term of each employment agreement continues until it is terminated by the officer or us.

Our future success is dependent upon our ability to attract and retain additional qualified sales and marketing, clinical development, scientific and managerial personnel. The launch of the commercial sale of FACTIVE tablets during the second half of 2004 required us to significantly increase our hiring of new employees, primarily with expertise in the areas of sales and marketing. We will continue to increase these efforts in the future. Like others in our industry, we may face, and in the past we have faced from time to time, difficulties in attracting and retaining certain employees with the requisite expertise and qualifications. We believe that our historical recruiting periods and employee turnover rates are similar to those of others in our industry; however, we cannot be certain that we will not encounter greater difficulties in the future.

Changes in the expensing of stock-based compensation will result in unfavorable accounting charges and may require us to change our compensation practices. Any change in our compensation practices may adversely affect our ability to attract and retain qualified scientific, technical and business personnel.

We rely heavily on stock options to compensate existing employees and attract new employees. As a result of new accounting rules implemented by the Financial Accounting Standards Board, as of January 1, 2006, we were required to record expense for the fair value of stock options and the fair value of purchase rights under our employee stock purchase plan, thereby increasing our operating expenses and reported losses. Although we intend to continue to include various forms of equity in our compensation plans, if the extent to which we use forms of equity in our plans is reduced due to the negative effects on earnings, it may be difficult for us to attract and retain qualified scientific, technical and business personnel.

Sales of FACTIVE in European countries in which we do not have rights to market the product could adversely affect sales in the European countries in which we have exclusive rights to market the product.

Our exclusive rights to market FACTIVE in Europe are limited to France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. These countries included all of the members of the European Union on the date of the original agreement to license FACTIVE. However, in 2004, a number of additional European countries in which we do not have rights to market FACTIVE were admitted as members of the European Union. If LG Life Sciences were to sell FACTIVE or license a third party to sell FACTIVE in such countries, our ability to maintain our projected profit margins based on sales in the territories covered by the LG Life Sciences license agreement may be

41

adversely affected because customers in our territory may purchase FACTIVE from neighboring countries in the European Union and our ability to prohibit such purchases may be limited under European Union antitrust restrictions.

Failure to secure distribution partners or obtain regulatory approval in foreign jurisdictions will prevent us from marketing FACTIVE abroad.

We recently entered into a Sublicensing and Distribution Agreement with Pfizer, S.A. de C.V. (Pfizer Mexico) whereby we sublicensed our rights to sell FACTIVE tablets in Mexico to Pfizer Mexico. We intend to further market FACTIVE through distribution partners in most, if not all, of the other international markets for which we have a license to market the product. This will include the European Union and Canada. We may not be able to secure distribution partners at all, or those that we do secure, including our relationship with Pfizer Mexico, may not be successful in obtaining regulatory approval or in marketing and distributing FACTIVE. If we are not able to secure distribution partners or those partners are unsuccessful in their efforts, it would significantly limit the revenues that we expect to obtain from the sales of FACTIVE.

Further, in order to market FACTIVE in the European Union, Mexico and other foreign jurisdictions for which we have rights to market the product, we or our distribution partners must obtain separate regulatory approvals. Obtaining foreign approvals may require additional trials and expense. For instance, our predecessor’s original regulatory filing in the UK was rejected. We may not be able to obtain approval or may be delayed in obtaining approval from any or all of the jurisdictions in which we seek approval to market FACTIVE.

Our debt obligations expose us to risks that could adversely affect our business, operating results and financial condition.

We have a substantial level of debt. As of March 31, 2006, we had approximately $180,044,000 of indebtedness outstanding (including accrued interest and excluding trade payables and accrued liabilities). The level of our indebtedness, among other things, could:

• make it difficult for us to make payments on our debt outstanding from time to time;

• make it difficult for us to obtain any necessary financing in the future for working capital, capital expenditures, debt service, acquisitions or general corporate purposes;

• limit our flexibility in planning for or reacting to changes in our business;

• reduce funds available for use in our operations;

• impair our ability to incur additional debt because of financial and other restrictive covenants;

• make us more vulnerable in the event of a downturn in our business; or

• place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have better access to capital resources.

If we experience a decline in revenues due to any of the factors described in this report or otherwise, we could have difficulty making required payments on our indebtedness. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of our indebtedness, we would be in default, which would permit the holders of our indebtedness to accelerate the maturity of the indebtedness and could cause defaults under any indebtedness we may incur in the future. Any default under our indebtedness could have a material adverse effect on our business, operating results and financial condition.

Our ability to meet our debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.

RISKS RELATED TO OUR INDUSTRY

Health care insurers and other payers may not pay for our products or may impose limits on reimbursement.

Our ability to commercialize FACTIVE tablets, TESTIM gel, Ramoplanin and our future products will depend, in part, on the extent to which reimbursement for such products will be available from third-party payers, such as Medicare, Medicaid, health maintenance organizations, health insurers and other public and private payers. We cannot assure you that third-party payers will pay for such products or will establish and maintain price levels sufficient for realization of an appropriate return on our investment in product development. If adequate coverage and reimbursement levels are not provided by government and private payers for use of our products, our products may fail to achieve market acceptance and our results of operations may be materially adversely affected. In addition, in December 2003 President Bush signed into law new Medicare prescription drug coverage legislation. While we cannot yet predict the impact the new legislation could have on our ability to commercialize FACTIVE tablets, TESTIM gel, Ramoplanin and any future products, the new legislation could adversely affect our anticipated revenues and results of operations, possibly materially.

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Many health maintenance organizations and other third-party payers use formularies, or lists of drugs for which coverage is provided under a health care benefit plan, to control the costs of prescription drugs. Each payer that maintains a drug formulary makes its own determination as to whether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs in the same class. This determination often involves an assessment of the clinical appropriateness of the drug and sometimes the cost of the drug in comparison to alternative products. We cannot assure you that FACTIVE tablets, TESTIM gel, Ramoplanin or any of our future products will be added to payers’ formularies, whether our products will have preferred status to alternative therapies, nor whether the formulary decisions will be conducted in a timely manner. We may also decide to enter into discount or formulary fee arrangements with payers, which could result in our receiving lower or discounted prices for our products.

Wholesalers, pharmacies and hospitals may not provide adequate distribution for our products.

Our ability to commercialize our products will depend, in part, on the extent to which we obtain adequate distribution of our products via wholesalers, pharmacies and hospitals, as well as other customers. Wholesalers and larger retailers may be reluctant to stock and distribute Oscient products since we are not a large, well-established company. If we do not obtain adequate distribution of our products, the commercialization of FACTIVE and TESTIM and our anticipated revenues and results of operations could be adversely affected.

If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, we could be forced to pay substantial damage awards.

The use of any of our product candidates in clinical trials, and the sale of any approved products, might expose us to product liability claims. We currently maintain, and we expect that we will continue to maintain, product liability insurance coverage in the amount of $10 million per occurrence and $10 million in the aggregate. Such insurance coverage might not protect us against all of the claims to which we might become subject. We might not be able to maintain adequate insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from a claim brought successfully against us. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm our business.

In addition, a product recall or excessive warranty claims (in any such case, whether arising from manufacturing deficiencies, labeling errors or other safety or regulatory reasons) could have an adverse effect on our product sales or require a change in the indications for which our products may be used.

RISKS RELATED TO THE SECURITIES MARKET

Our stock price is highly volatile.

The market price of our stock has been and is likely to continue to be highly volatile due to the risks and uncertainties described in this section of the report, as well as other factors, including:

• our ability to successfully commercialize FACTIVE tablets and TESTIM;

• the revenues that we may derive from the sale of FACTIVE tablets and TESTIM, as compared to analyst estimates;

• the results of our clinical trials for Ramoplanin and additional indications for FACTIVE and the pace of our progress in those clinical trials;

• our ability to license or develop other compounds for clinical development;

• the timing of the achievement of our development milestones and other payments under our strategic alliance agreements;

• termination of, or an adverse development in, our strategic alliances;

• conditions and publicity regarding the biopharmaceutical industry generally;

• price and volume fluctuations in the stock market at large which do not relate to our operating performance;

• sales of shares of our common stock in the public market; and

• comments by securities analysts, or our failure to meet market expectations.

Over the two-year period ending March 31, 2006 the closing price of our common stock as reported on the Nasdaq National Market ranged from a high of $6.78 to a low of $1.60. The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies. In the past, companies

43

that have experienced volatility have sometimes been the subject of securities class action litigation. If litigation were instituted on this basis, it could result in substantial costs and a diversion of management’s attention and resources. These broad market fluctuations may adversely affect the price of our securities, regardless of our operating performance.

Multiple factors beyond our control may cause fluctuations in our operating results and may cause our business to suffer.

Our revenues and results of operations may fluctuate significantly, depending on a variety of factors, including the following:

• the pace of our commercialization of FACTIVE tablets and TESTIM;

• the level of acceptance by physicians and third party payors of FACTIVE and TESTIM;

• the progress of our clinical trials for FACTIVE, Ramoplanin and our other product candidates;

• our success in concluding deals to acquire additional approved products and product candidates;

• the introduction of new products and services by our competitors;

• regulatory actions; and

• expenses related to, and the results of, litigation and other proceedings relating to intellectual property rights.

We will not be able to control many of these factors. In addition, if our revenues in a particular period do not meet expectations, we may not be able to adjust our expenditures in that period, which could cause our business to suffer. We believe that period-to-period comparisons of our financial results will not necessarily be meaningful. You should not rely on these comparisons as an indication of our future performance. If our operating results in any future period fall below the expectations of securities analysts and investors, our stock price may fall, possibly by a significant amount.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Description
10.1	Sublicensing and Distribution Agreement dated as of February 6, 2006 by and between Oscient Pharmaceuticals Corporation and Pfizer, S.A. de C.V.*
10.2	Amendment No. 5 to License and Option Agreement between Oscient Pharmaceuticals Corporation and LG Life Sciences, Ltd. dated February 3, 2006.*
10.3	Assignment and Termination Agreement dated February 3, 2006 by and between Oscient Pharmaceuticals Corporation and Vicuron Pharmaceuticals Inc. *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

* Confidential information has been omitted from this exhibit and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized who also serves in the capacity of principal financial officer.

Oscient Pharmaceuticals Corporation

/s/ Stephen Cohen

Stephen Cohen

Senior Vice President & Chief Financial Officer

(Principal Financial Officer)

May 10, 2006

45

OSCIENT PHARMACEUTICALS CORPORATION

EXHIBIT INDEX

Exhibit No.	Description
10.1	Sublicensing and Distribution Agreement dated as of February 6, 2006 by and between Oscient Pharmaceuticals Corporation and Pfizer, S.A. de C.V.*
10.2	Amendment No. 5 to License and Option Agreement between Oscient Pharmaceuticals Corporation and LG Life Sciences, Ltd. dated February 3, 2006.*
10.3	Assignment and Termination Agreement dated February 3, 2006 by and between Oscient Pharmaceuticals Corporation and Vicuron Pharmaceuticals Inc. *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

* Confidential information has been omitted from this exhibit and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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EX-10.1

Exhibit 10.1

SUBLICENSING AND DISTRIBUTION AGREEMENT

Dated as of February 6, 2006

MADE BETWEEN

OSCIENT PHARMACEUTICALS CORPORATION

AND

PFIZER, S.A. DE C.V.

SUBLICENSING AND DISTRIBUTION AGREEMENT

SUBLICENSING AND DISTRIBUTION AGREEMENT (the “Agreement”) entered into by Oscient Pharmaceuticals Corporation (“Oscient”), represented by Steven M. Rauscher, its President and Chief Executive Officer, a corporation constituted and existing under the laws of the Commonwealth of Massachusetts, United States of America, as party of the first part, Pfizer, S.A. de C.V. (“Pfizer Mexico”) (both Oscient and Pfizer Mexico may individually be referred to as a “Party” and collectively as the “Parties”), represented by Jorge Bracero Cotty, its legal representative, a corporation constituted and existing under the laws of Mexico, in accordance with the following recitals and terms:

R E C I T A L S

I. Oscient hereby represents that:

A. It is a corporation incorporated, validly existing and in good standing in accordance with the laws of the Commonwealth of Massachusetts, United States of America (the “United States”), and has all the requisite corporate power to carry on its business as now being conducted.

B. The person signing this Agreement on its behalf has been duly authorized to do so in accordance with all the corporate and legal requirements applicable to it, which authority has not been revoked or limited in any way.

C. It has acquired from LG Life Sciences, LTD the exclusive license (the “Head License”) to Develop and Commercialize in Mexico, among other countries, human pharmaceutical oral formulations of any compound containing the active ingredient gemifloxacin as well as the right to continue developing the same.

D. As of and prior to the date of execution of this Agreement, it has not granted to any third party a sublicense in Mexico under the Head License.

E. Patents and Trademarks for the Product have been granted and properly maintained, and patent applications are pending, in accordance with the Mexican Intellectual Property Law. All renewal fees related to such Patents and Trademarks have been paid in full.

F. It wishes to grant Pfizer Mexico an exclusive sublicense to conduct clinical development and to obtain and maintain regulatory approval in Mexico for the Product and to manufacture, package, label, store, maintain, handle, ship, promote, distribute, sell and otherwise Commercialize the Product in Mexico, in accordance with the terms of this Agreement.

G. The Head License is currently in good standing and in full force. Oscient has the right under the Head License to enter into this Agreement and grant the Sublicense, as later defined, to Pfizer Mexico as provided herein.

H. To Oscient’s knowledge, no litigation exists or is threatened which would, if successful, adversely affect the rights granted to Pfizer Mexico under this Agreement.

I. As of the date of execution of this Agreement, the fill-finish manufacture of the Product is completed pursuant to that certain Manufacturing Services Agreement by and between Patheon Pharmaceuticals, Inc. and Oscient dated as of January 20, 2005.

J. To Oscient’s knowledge, the manufacture, use, import and sale of the Product does not, and will not, infringe any claim of any patent rights or any other intellectual property rights of any third party.

K. There are no, nor have there been any, law suits or legal proceedings with respect to the safety, efficacy and quality of the Product, nor does it have knowledge of any review process (other than with respect to certain sNDAs recently filed by Oscient with the FDA related to CAP and ABS) from any Governmental Authority outside Mexico in connection therewith.

II. Pfizer Mexico hereby represents that:

A. It is a company in good standing and incorporated in accordance with the laws of Mexico as set out in public instrument number 19,021, dated April 12, 1951, certified by Roberto Landa Guth, notary public number 22, for the Federal District, Mexico, and duly registered in what was known as the Public Property and Commercial Registry under number 831, on page 375, volume 271, third book on June 26, 1951.

B. It is represented in this Agreement by Jorge Bracero Cotty whose capacity appears in public instrument number 26,605, dated November 24, 2000, certified by Jose Maria Morrera,

2

notary public number 102, for the Federal District, Mexico, and duly registered in the Public Commercial Registry under number 11,684, dated November 29, 2000, which authority has not been revoked or limited in any way as of the date hereof.

C. It is engaged, among other things, in conducting the manufacturing of pharmaceutical products, clinical development and activities related to obtaining and/or maintaining regulatory approval in Mexico for pharmaceutical products and in marketing and commercializing such products in Mexico and specifically wishes to enter into this Agreement with Oscient to provide these services with respect to the Product as provided herein.

D. It has the experience, human resources, materials and financial resources required to comply with its obligations under this Agreement and has all the requisite corporate power to carry on its business as now being conducted.

E. It is registered as a taxpayer with the Federal Taxpayers Registry under number PFI 730206-632.

NOW THEREFORE IN CONSIDERATION OF THE FOREGOING AND THE MUTUAL COVENANTS AND AGREEMENTS OF THE PARTIES, THE PARTIES HEREBY AGREE AS FOLLOWS:

T E R M S

SECTION 1. SUBLICENSES AND DISTRIBUTION APPOINTMENT BY OSCIENT

A. Sublicense to Pfizer Mexico

Subject to the terms and conditions of this Agreement, Oscient hereby grants to Pfizer Mexico (and Pfizer Mexico hereby accepts from Oscient) under the Head License an exclusive, royalty-bearing sublicense under the Patents and Know-How solely to Develop the Product in Mexico and Commercialize the Product in Mexico as well as the exclusive right to use the Trademarks in Mexico solely to Commercialize the Product in Mexico (the “Sublicense”); provided that, following the expiration, termination or invalidation of the last to expire of all of the patents listed in Exhibit “5”, Pfizer Mexico shall retain a non-exclusive right to Commercialize the Product in Mexico using the Know-How licensed hereunder.

3

Subject to the other terms of this Agreement, as between Oscient and Pfizer Mexico, Oscient retains the exclusive right to use the Know-How and practice the Patents for any and all uses outside of Mexico.

B. Use of Trademarks

Except as granted in this Agreement, Pfizer Mexico has no rights in or to the Trademarks, or any other trademarks, trade names or copyrights owned or used by Oscient and Pfizer Mexico agrees that it shall not in any way infringe upon, harm, contest or otherwise impair the rights of Oscient to the Trademarks.

C. Distribution

Subject to the terms herein Oscient hereby grants to Pfizer Mexico (and Pfizer Mexico hereby accepts from Oscient) the exclusive right to Commercialize the Product in Mexico.

D. Modifications to Product

1. Oscient reserves the right to modify, change, develop or improve the Product, including any change in the manufacturing process of the active pharmaceutical ingredient of the Product (the “Alteration”) during the Term of this Agreement and shall give Pfizer Mexico as much prior written notice as is reasonably practicable of any Alteration (for purposes of this Section 1(D)(1), the “Notice Period”); provided that, Oscient shall continue to deliver Product and the active pharmaceutical ingredient of the Product (in terms of Section 4 (c) (3)), during such Notice Period upon receipt of a Purchase Order (as defined in Section 4(A)(5)) from Pfizer Mexico pursuant to the Specifications in place prior to any Alteration.

2. Until termination of the Fill-Finish Supply Period (as defined below), Oscient shall give Pfizer Mexico as much prior written notice as is reasonable practicable of any amendment to the manufacturing process and packaging specification (for purposes of this Section 1(D)(2), the “Notice Period”); provided that, Oscient shall continue to deliver Product during such Notice Period upon receipt of a Purchase Order from Pfizer Mexico pursuant to the Specifications in place prior to any such amendment to the manufacturing process or packaging specifications.

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E. Additional Product Sublicense

1. Oscient hereby grants Pfizer Mexico for the Term of the Agreement an exclusive option (the “Option”) to acquire an exclusive, royalty-bearing sublicense for Mexico under the Patents (and any other relevant patents to which Oscient has Control), Know-How and Trademarks to Develop and Commercialize Additional Products. Oscient shall notify Pfizer Mexico in the event that it is planning to Commercialize an Additional Product in Mexico (the “Notice”), and the Notice shall contain all relevant information available in connection therewith. Pfizer Mexico will have ***** days from the date of receipt of such Notice from Oscient to give written notice to Oscient of Pfizer Mexico’s election to exercise the Option, failing which the Option shall expire and be of no further force or effect. In the event that Pfizer Mexico elects to exercise the Option, the Parties shall enter into good faith negotiations regarding the terms and conditions of such sublicense and further agree to negotiate royalty and supply prices that are fair and reasonable to both Parties and consistent with Mexican tax and other laws and regulations.

2. In the event that the Parties fail to reach an agreement regarding the terms and conditions of such sublicense within ***** days after Pfizer Mexico’s exercise of the Option (the “Negotiation Period”), then Oscient may offer any and all rights to such Additional Products to third parties; provided, however, that, prior to consummating a transaction with a third party, Oscient shall offer to Pfizer Mexico a right to acquire the sublicense on the same terms and conditions as agreed upon with the third party, if the terms and pricing in such sublicense are, in the aggregate, more favorable to such third party than the terms and pricing last offered to Pfizer Mexico by Oscient. Pfizer Mexico shall thereupon have ***** days to accept such terms and pricing in which case, Oscient shall grant such sublicense to Pfizer Mexico.

3. Notwithstanding anything to the contrary herein, in the event that the Parties fail to reach an agreement regarding the terms and conditions of such sublicense during the Negotiation Period, Oscient may elect to either (i) continue to consider offering rights to such Additional Products to third parties pursuant to the terms set forth in Section 1(E)(2) above, or (ii) submit the matter of agreement on a sublicense for such Additional Product to arbitration. In such event, the Parties shall jointly appoint one (1) arbitrator and such arbitration shall be conducted in

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

5

accordance with the rules and procedures of the American Arbitration Association for commercial arbitration and shall take place in New York, New York. Within the number of days agreed upon by the Parties and the single arbitrator, each Party shall submit to the arbitrator a written proposal for the terms of a sublicense from Oscient to Pfizer Mexico for such Additional Product. The arbitrator shall choose one of the proposals as the final and binding terms of the sublicense of such Additional Product. If a Party does not submit a proposal within the time period agreed upon, the proposal of the other Party shall be binding. In the event that the Parties shall fail to agree upon the choice of an arbitrator, then the arbitration shall proceed in accordance with Section 22(A) of this Agreement.

F. Reservation of Rights

All rights not expressly granted under this Agreement to Pfizer Mexico are reserved to Oscient.

SECTION 2. INFORMATIONAL LICENSE

Subject to the provisions of Section 13(F) herein, Pfizer Mexico hereby grants to Oscient a non-exclusive, perpetual, fully paid-up, irrevocable, fully sub-licensable, worldwide (not including Mexico during the Term) license to use the information, materials, data, documents and plans relating to Products, including regulatory applications and Regulatory Approvals and manufacturing documents, data and plans (“Pfizer Information”), which come into the possession or under the Control of Pfizer Mexico in the course of and as a result of Pfizer Mexico’s participation in the Development and Commercialization of the Product and the manufacturing of the Product (as provided in Section 4 below) pursuant to Pfizer Mexico’s rights under this Agreement.

SECTION 3. TERM

The term of this Agreement shall begin on the date of execution set out below and, unless earlier terminated in accordance with this Agreement, shall continue while Patent Royalties (as defined in Section 7(D)) and Trademark and Know-How Royalties (as defined in Section 7(E)) remain payable by Pfizer Mexico to Oscient under this Agreement (the “Term”).

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SECTION 4. PRODUCT SUPPLY TERMS; ACCESS TO MANUFACTURE FACILITY OF THE PRODUCT; TECHNOLOGY TRANSFER

A. Product Supply Terms

1. Oscient shall use best efforts to exclusively supply the Product to Pfizer Mexico in Mexico, and Pfizer Mexico shall exclusively purchase from Oscient, all Pfizer Mexico’s requirements of the Product tablets in final form at a cost per tablet equal to the lower of: (i) Oscient’s *****, or (ii) the per tablet cost for the periods set forth below (such costs set forth below, the “Maximum Per Tablet Cost”); provided that, the Parties agree that (A) Pfizer Mexico shall pay, in addition, all *****, (B) Pfizer Mexico will not be under any obligation to purchase from Oscient any inventory that does not meet Mexican regulatory requirements relating to expiration limitations or has less than ***** months of expiration at the moment of transfer of title pursuant to corresponding Purchase Order and (C) Oscient’s obligation to supply the Product hereunder shall terminate on the later to occur of ***** months after the execution of this Agreement or the commencement of commercial manufacture of the Product by Pfizer Mexico unless otherwise mutually agreed to by the Parties (“Fill-Finish Supply Period”):

Purchase Period	Cost Per Tablet (USD)
2006	$	*****
2007-2010	$	*****
2011 and thereafter	$	*****

2. Notwithstanding anything to the contrary in this Agreement or a Purchase Order, Pfizer Mexico shall be responsible for, and the Price does not include, any ocean, air and inland freight charges, insurance, customs broker fees, storage charges, taxes (including use, consumption, sales, excise or value added taxes), tariffs, customs duties and any other charges imposed by any law or shipping practices applicable in Mexico or in the United States, all of which shall be paid by Pfizer Mexico. Notwithstanding the foregoing, the Price does include the cost of *****.

3. Oscient shall submit invoices for all shipments of Product resulting from applicable Purchase Order to Pfizer Mexico. Invoices shall be sent no earlier than the date of Product

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

7

shipment as set forth in the applicable Purchaser Order. All invoices hereunder shall be payable by Pfizer Mexico in US Dollars within forty (45) days of the date the invoice is received by Pfizer Mexico; provided that such invoices comply with the applicable Mexican tax requirements as stated in the Purchase Order. All payments shall be payable in dollars, legal tender of the United States of America and made into the accounts and currency exchange conditions set out in Section 7(H)(2) herein.

4. Promptly after execution of this Agreement, Pfizer Mexico shall provide Oscient with a written, non-binding ***** month forecast of the volume of each Product that Pfizer Mexico then anticipates will be required to be manufactured, packaged and shipped to Pfizer Mexico during the periods established on the Purchase Order.

5. Pfizer Mexico may only order Products in multiples of the Minimum Run Quantities; provided that, Pfizer Mexico may require packaging of the bulk tablets contained in the Minimum Run Quantity in more than one packaging configuration. In ordering the Product the Parties hereby agree to use the form Purchase Order attached hereto as Exhibit “11”; provided that, (i) the terms and conditions of this Agreement shall prevail over any terms in the Purchase Order to the extent that the same may be inconsistent with the terms and conditions hereof, and (ii) Sections 3 (Warranties), 6 (Inspection), 14 (Indemnification), 15 (Drawing Prints and Specifications) and 16 (Tools Dies and Molds, Etc.) of the Purchase Order shall be null and void and superseded by the terms of this Agreement (the “Purchase Order”).

6. Oscient shall permit an independent certified accounting firm selected by Pfizer Mexico to inspect and audit Oscient’s records that relate to the manufacture to verify accuracy of ***** charged to Pfizer Mexico. Oscient shall permit such accounting firm and its employees access to all documents, whether in paper or electronic form, in its possession and control that relate to the Product, and shall allow the same to be copied. A copy of such auditing firm’s conclusions of its audit shall be furnished to Oscient at least ten (10) days prior to disclosure to Pfizer Mexico to allow Oscient an opportunity to review the accuracy of the auditing firm’s conclusions. If any review reveals a deficiency in the calculation in the ***** charged to Pfizer Mexico, then (a) Oscient shall promptly reimburse Pfizer Mexico the difference charged, and (b) if such overpayment is by *****% or more, Oscient shall pay the reasonable out-of-pocket costs and expenses incurred by Pfizer Mexico in connection with such inspection and audit.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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7. On or before the ***** day preceding the commencement of each calendar month, Pfizer Mexico shall issue a Purchase Order for the Products to be manufactured and shipped to it on a date (the “Required Delivery Date”) not less than ***** days from the first day of the calendar month immediately following the date that the Purchase Order is submitted; provided that, one binding Purchase Order for packaging related materials (including foil for blister packaging) (the “Packaging Purchase Order”) shall be issued by Pfizer Mexico no later than ***** days prior to the initial Purchase Order for finished Product and, provided further that, Pfizer Mexico has delivered all camera ready art for the final packaging of the Product as set forth in Section 4(A)(9) below. The quantities of Products ordered in each such Purchase Order or materials ordered under Packaging Purchase Order shall be firm and binding on Pfizer Mexico and shall not be subject to reduction by Pfizer Mexico. Pfizer Mexico has the right to reject (i) all or any portion of Products that does not comply with the warranties set forth in Section 11 herein without invalidating any remainder of such shipment, or (ii) all or any portion of materials ordered under a Packaging Purchase Order if such materials do not comply with reasonable industry standards. Pfizer Mexico or its designee shall inspect the Products upon receipt thereof and shall give Oscient written notice (a “Deficiency Notice”) of all claims for Products that do not comply with the warranty set forth in Section 11 within 25 days after Pfizer Mexico’s receipt thereof (or, in the case of any non-compliance not reasonably susceptible to discovery upon customary inspection on receipt of the Product (“Latent Defect”), within 25 days after discovery thereof by Pfizer Mexico, but in no event after the expiration date of the Product). Except in the case of a Latent Defect, should Pfizer Mexico fail to provide Oscient with written notice of its acceptance or rejection of the shipment with 25 days of the receipt of a shipment of Products, then the shipment shall be deemed to have been accepted by Pfizer Mexico on the 25^th day after shipment.

8. Under no circumstances shall Pfizer Mexico return any damaged, defective, returned or recalled Products to Oscient without Oscient’s prior written consent.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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9. For the period ending upon the termination of the Fill-Finish Supply Period, Pfizer Mexico hereby grants to Oscient a fully-paid, royalty-free, sublicensable, right and license in and to (i) the packaging and labeling (including the package insert, if applicable) that is approved by Governmental Authorities in Mexico for use with Product (other that the Trademarks), and (ii) Pfizer Mexico’s trademark to perform its obligations under this Agreement. As soon as practicable following the execution of this Agreement, Pfizer Mexico shall provide to Oscient camera ready art for the final packaging of the Product, which shall be in compliance with all applicable laws and Regulatory Approvals for the Product in the Mexico and shall otherwise be in compliance with the provisions of this Agreement.

B. Access to Manufacturing Facility of the Product

1. Oscient hereby agrees to cause Patheon Pharmaceuticals Inc. to give reasonable access to Pfizer Mexico and/or its representatives, to Patheon Pharmaceuticals Inc. facilities where the Product is being manufactured, stored, tested or handle (the “Facility Access”) with the purpose of inspecting the manufacture, packaging and testing activities of the Product to be sold by Pfizer Mexico in Mexico to review compliance with Specifications and applicable Mexican laws. The Facility Access shall be provided at mutually agreeable times by the Parties, upon reasonable prior written notice to Oscient from Pfizer Mexico and only if Pfizer Mexico and/or its representatives are accompanied by Oscient personnel unless Pfizer Mexico is informed that Oscient personnel are not available for such inspection, in which case Pfizer Mexico’s inspection may proceed without Oscient’s participation. Such Facility Access shall be limited to the number of individuals which Patheon Pharmaceuticals Inc. determines is appropriate as to not disrupt the manufacturing process. For the avoidance of doubt the right provided herein does not include a right to access or inspect Patheon Pharmaceuticals Inc. financial records. Prior to completion of any inspection set forth in this Section 4(B)(1), Pfizer Mexico and/or its shall report any observations concerning the manufacturing process to Oscient and, promptly upon the completion of such inspection, the Parties agree to discuss and mutually agree to take any actions reasonable necessary to address Pfizer Mexico issues or concerns.

2. Oscient hereby agrees to cause Patheon Pharmaceuticals Inc. to give reasonable Facility Access to Pfizer Mexico and/or its representatives, for the purpose of (i) viewing the manufacture process in order for Pfizer Mexico to transfer the technology as described in Section

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4(C) below, and (ii) within ***** days of the execution of this Agreement, inspecting the manufacture, packaging and testing activities, including all applicable documentation related thereto, to verify Good Manufacturing Practices related to the Product; provided that, the Parties shall reasonably agree on a date for such inspection within ***** days from the execution of this Agreement. The Facility Access shall be provided at mutually agreeable times by the Parties, upon reasonable prior written notice to Oscient from Pfizer Mexico and only if Pfizer Mexico and/or its representatives are accompanied by Oscient personnel unless Pfizer Mexico is informed that Oscient personnel are not available for such inspection, in which case Pfizer Mexico’s inspection may proceed without Oscient’s participation. Such Facility Access shall be limited to the number of individuals which Patheon Pharmaceuticals Inc. determines is appropriate as to not disrupt the manufacturing process. For the avoidance of doubt the right provided herein does not include a right to access or inspect Patheon Pharmaceuticals Inc. financial records. Oscient agrees that it will have materially breached this Agreement pursuant to the terms of Section 19(A) if it or its third party manufacturer does not give reasonably necessary access to Pfizer Mexico and/or its representatives to conduct the inspection mentioned in Section 4(B)(2)(ii); provided that the outcome of such inspection shall not diminish either Party’s obligations under this Agreement unless otherwise mutually agreed to by the Parties.

3. The Parties hereby agree that the batches manufactured for Oscient by Patheon Pharmaceuticals Inc. for sale by Pfizer Mexico in Mexico may only be sold in Mexico, and Oscient shall not sell or in any way commercialize such batches in any other territory.

C. Technology Transfer

1. Oscient hereby agrees to use reasonable efforts to facilitate and support the activities necessary for the transfer of the technology pertaining to the fill and finish manufacturing of the Products to be sold in Mexico at a Pfizer Mexico facility (the “Pfizer Facility”) and shall give Pfizer Mexico and/or its representatives access to any know how or materials that are necessary to enable Pfizer Mexico to provide the fill and finish manufacturing services; provided that, Pfizer Mexico agrees that neither it nor any of its representatives shall have any right to manufacture active pharmaceutical ingredient for the Product (the “Technology Transfer”). Pfizer Mexico shall reimburse Oscient for all out-of-pocket expenses, including expenses charged by its sub-contracted manufacturer, reasonably incurred by Oscient in connection with the Technology Transfer, not to exceed $*****.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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2. Promptly after the execution of this Agreement, Pfizer Mexico hereby agrees to provide Oscient the location of the Pfizer Facility as well its proposed initial timeline for the Technology Transfer and enter into good faith negotiations regarding the terms and conditions of an “Active Pharmaceutical Ingredient Supply Agreement”. The Parties hereby agree that the completion of the Technology Transfer is subject to the execution of an Active Pharmaceutical Ingredient Supply Agreement or another agreement between the Parties covering the supply of Active Pharmaceutical Ingredient by Oscient to Pfizer Mexico in lieu of finished Product. Such Active Pharmaceutical Ingredient Supply Agreement shall include, among other things, the following terms: (i) warranties and indemnities limiting Oscient’s obligations under Sections 11 and 21 herein to account for the fact that Pfizer Mexico will be manufacturing finished product, (ii) Pfizer Mexico’s delivery of yearly non-binding forecasts, updated quarterly, for anticipated orders of Active Pharmaceutical Ingredient, (iii) Oscient’s limited right to have reasonable access and inspect Pfizer Mexico Product manufacturing facilities, and (iv) Pfizer Mexico’s right to commercially manufacture Product.

3. Notwithstanding the foregoing, Oscient hereby agrees to use best efforts to supply Pfizer Mexico with the necessary Active Pharmaceutical Ingredient of the Products in order for Pfizer Mexico to get the necessary approvals from the Governmental Authority to manufacture the Products. Such Active Pharmaceutical Ingredient for use in the Technology Transfer process shall by supplied to Pfizer Mexico at the actual cost to Oscient pursuant to a Purchase Order delivered to Oscient providing at least ***** days prior written notice of delivery. Oscient hereby agrees to supply Active Pharmaceutical Ingredient to Pfizer Mexico for Commercialization of the Product in Mexico upon the execution of an Active Pharmaceutical Ingredient Supply Agreement at a cost per kilogram equal to the lower of: (i) the amount *****, or (ii) the per kilogram cost for the periods set forth below:

Purchase Period	Per Kilo Cost
2006:	$	***** per kilogram
2007-2010:	$	***** per kilogram
2011 and thereafter:	$	***** per kilogram

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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D. Non-Commercial Manufacture of Product

Subject to the terms and conditions of this Agreement, Oscient hereby grants to Pfizer Mexico an exclusive, royalty-bearing, non-transferable, non-sublicensable sublicense under the Patents and Know-How to manufacture the Product in Mexico solely for non-commercial purposes and solely for Pfizer Mexico to obtain the necessary approvals from the Governmental Authority to manufacture the Products upon the execution of an Active Pharmaceutical Ingredient Supply Agreement; provided that, Pfizer Mexico agrees that neither it nor any of its representatives: (i) shall have any right to manufacture active pharmaceutical ingredient for the Product, (ii) shall purchase active pharmaceutical ingredient for the Product from any entity other than Oscient, and (iii) shall manufacture any Product that is to be commercially sold to third parties.

SECTION 5. REGULATORY APPROVAL

A. Regulatory Approval

Subject to Steering Committee review as set forth below, Pfizer Mexico shall use Diligent Efforts in, and be responsible for, all activities (including clinical testing, pricing and reimbursement approvals) relating to obtaining in its name and/or maintaining regulatory approvals, licenses, registrations or authorizations of any kind from Regulatory Authorities in Mexico for the importation, distribution, marketing and sale of the Product in Mexico (“Regulatory Approval”); provided that: (i) Pfizer Mexico agrees to consult, in a timely fashion, with Oscient with respect to such regulatory matters, including providing all correspondence, applications, or other documentation or information submitted to or received from Regulatory Authorities and drafts of any material documents, filings, data or other correspondence pertaining to Regulatory Approvals sufficiently in advance of submission (where practical or, otherwise, promptly thereafter) so that Oscient may review, consult with Pfizer Mexico and otherwise have a reasonable opportunity to provide comments to Pfizer Mexico and influence the substance of such filing; (ii) where practical, give reasonable prior notice to Oscient in order to allow Oscient to attend all material meetings with regulatory authorities (including but not limited to meetings related to the inclusion of the Product in the Mexican “Cuadro Basico” and the “Catalogo de Medicamentos”) when, in Oscient’s good faith

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reasonable judgment, such discussion could adversely affect the marketing or safety profile of the Product for the market in the United States; and (iii) Pfizer Mexico shall conduct all such regulatory activities in accordance with applicable laws and regulations, Good Manufacturing Practices and Good Clinical Practices. Subject to Section 5(E) below, costs of Development and related Regulatory Approvals shall be borne by Pfizer Mexico.

B. Government Inspections and Inquiries

1. Pfizer Mexico shall advise Oscient of any government visits to, or written or oral inquires about, any facilities or procedures relating to the manufacture/packaging and Commercialization of the Product, promptly (but in no event later than five (5) business days) after notice of such visit or inquiry. Pfizer Mexico shall, within five (5) business days of receipt or submission, furnish to Oscient any report or correspondence issued by or provided to the governmental authority in connection with such visit or inquiry.

2. Oscient shall advise Pfizer Mexico of any government visits to, or written or oral inquires about, any facilities or procedures relating to the manufacture or storage of the Product, promptly (but in no event later than five (5) business days) after notice of such visit or inquiry.

C. Communication With Regulatory Authorities

Pfizer Mexico shall be responsible for communications with the Regulatory Authorities with respect to the Product. Oscient shall use reasonable efforts to assist Pfizer Mexico in responding to any queries from a Regulatory Authority, and will provide all the necessary documents, data, and information which it has assembled and is in its possession that will assist Pfizer Mexico in preparing the Regulatory Documents to be filed with Regulatory Authorities, including but not limited to, providing Pfizer Mexico free of charge with (i) an authorization letter substantially in the form of Exhibit “8”, (ii) Certificates of Pharmaceutical Product (CPPs), and (iii) Regulatory Samples of the Product for submission to the Regulatory Authority. For information contained in the LG Life Sciences LTD drug master file, Oscient will provide such information to Pfizer Mexico, or use Diligent Efforts to cause LG Life Sciences LTD to provide the information without undue delay directly to the Regulatory Authority and respond to any additional queries from the Regulatory Authority in a timely manner. In the event that information is provided directly to the Regulatory Authority, Pfizer Mexico shall be provided with a copy of the cover

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letter submitted with the Regulatory Authority relating to such information. Pfizer Mexico shall advise Oscient of material developments and events relating to regulatory issues in writing within two (2) business days after notice of such material developments and events. To the extend permitted by Mexican law, Pfizer Mexico shall take the steps necessary to ensure that information submitted to Regulatory Authorities is kept confidential.

D. Joint Steering Committee

1. Within thirty (30) days of the date of this Agreement, a joint steering committee, comprised of equal representation by both Parties (the “Steering Committee”), shall be established by both Parties to review and approve Pfizer Mexico’s regulatory and Development plans (including those for clinical trials) relating to the Product (including review of any Pfizer Information) and all related filings as well as to perform such other functions as appropriate to further the purposes of this Agreement as determined by the Parties. In addition, Pfizer Mexico shall keep Oscient informed of the following matters through the Steering Committee:

(i) Plans and updates relating to the Commercialization of the Product, including updates on achievement of objectives set forth in the Detailing and Promotional Plan (as defined in Section 6(B) below) and Annual Plans (as defined in Section 8(B)(2) below), progress towards sales goals, and related sales and marketing activities;

(ii) Prices, discounts, rebates and similar polices for Products in Mexico;

(iii) Reporting and pricing information to government authorities in accordance with applicable laws;

(iv) Updates on any issues or concerns related to entry of a Generic Product;

(v) Summaries and analysis of any Adverse Event information or other medical inquires specified in Section 12 herein; and

(vi) Issues related to the manufacture of the Product by Pfizer Mexico.

Further, Oscient, through the Steering Committee, agrees to keep Pfizer Mexico informed of:

(i): Oscient’s marketing plan, any updates therewith, as well as the promotion materials owned or under the control of Oscient (“Oscient Promotional Materials”);

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(ii) updates to regulatory status for commercialization of the Product in the United States; and

(iii) any material updates regarding the development of Additional Products.

The Parties, through the Steering Committee, shall also discuss and review all matters in connection with the Technology Transfer, the Active Pharmaceutical Ingredient Supply Agreement and any developments and/or updates to the manufacturing process of the Products.

2. A Party may change or replace its representatives on the Steering Committee as it deems appropriate, by notice to the other Party. The Steering Committee shall hold meetings at such times and places as shall be determined by the co-chairpersons. The meetings shall be held quarterly unless otherwise agreed to by the Parties. Steering Committee meetings may be held in person or by telephone or video conference.

3. In the event of a dispute within the Steering Committee such that no decision can be made with respect to a particular issue, the matter may be referred by either Party to Oscient’s chief executive officer and Pfizer Mexico’s Country Manager for attempted resolution by good faith negotiation. If such individuals are unable to resolve the dispute within thirty (30) days after referral, then Pfizer Mexico shall make the final determination to the extent not inconsistent with the terms and provision of this Agreement. Notwithstanding anything contained herein to the contrary, the Parties shall mutually agree on trial designs and clinical protocols to the extent they relate to: (i) the pursuit of indications not currently approved in the United States, (ii) length of therapy, (iii) dosing, and (iv) issues which could otherwise affect the safety profile of the Product.

4. The Steering Committee shall only have such powers as are expressly delegated to it in this Agreement. The Steering Committee is not a substitute for the rights or obligations of the Parties and shall not have the authority to amend this Agreement.

5. Each Party will designate one of its members of the Steering Committee to act as a co-chairperson to facilitate the performance of its rights and satisfaction of its obligations hereunder.

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E. Clinical Development

1. The Parties agree that Pfizer Mexico may, but is not obligated to, pursue in Mexico additional indications beyond the currently approved U.S. indications, CAP and AECB, pursuant to the terms herein and pursuant to Steering Committee approval as set forth in Section 5(D)(3) above. Oscient shall provide to Pfizer Mexico Know-How, including information from new clinical studies conducted by Oscient. In addition, the Parties will discuss from time to time, at each Party’s sole discretion, joint development initiatives in which the Parties will jointly define clinical protocols, select trial sites, and establish other development plan details. In the event the Parties agree to pursue such joint initiatives, the Parties will discuss in good faith an appropriate sharing of costs associated with such initiatives. Notwithstanding anything else in this Agreement, all Development activities in Mexico will, at the time of such activities, be consistent with the U.S. label in regard to duration of therapy, dose, and indication, unless otherwise approved in writing by Oscient; provided that, the Parties agree that (i) the regulatory filing for *****, and (ii) in connection with its initial filing for Regulatory Authority, Pfizer Mexico may pursue a ***** subject to Section 5(E)(2) below.

2. If Pfizer Mexico shall elect to pursue a ***** indication pursuant to Section 5(E)(1)(ii) above, Pfizer Mexico shall not (a) Commercialize *****; (b) list the ***** indication in the Product Information for Prescription (“IPP”), (c) permit its Sales Representatives or anyone else acting on behalf of Pfizer Mexico to refer to ***** when Detailing; or (c) otherwise advertise, publicize, or promote the ***** indication, including, without limitation, influencing educators with respect to CMEs, advisory boards, grants or other similar functions, without Oscient’s prior written consent, which shall not be unreasonably withheld. Upon receipt by Pfizer Mexico of Oscient consent, Pfizer Mexico shall take the steps necessary to Commercialize the Product in Mexico, including adding the Product with the ***** indication to the IPP.

3. Oscient shall review and promptly approve, at its sole discretion, in advance of filing and use, any and all submissions, including amendments and updates, by Pfizer Mexico of IPP for the Product to be filed with Regulatory Authorities.

F. Provision of Data

Pfizer Mexico shall provide Oscient with the data resulting from all clinical trials conducted by Pfizer Mexico in accordance with this Section. Oscient shall be free to use the results of any or

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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all such clinical trials in connection with the marketing, promotion, packaging, handling, distribution, use, storage, sale and offer for sale and product licensing of the Product outside Mexico. The results of any clinical studies shall not be publicized or published in any way without the prior written consent of Oscient. All inventions by or for Pfizer Mexico which are Developed hereunder shall be subject to Oscient’s joint ownership pursuant to the terms of this Agreement.

G. Additional Licenses

In addition to Regulatory Approval, Pfizer Mexico shall be responsible for obtaining and maintaining any other registrations, licenses and authorizations for the Product in Mexico, including those required by health and sanitary laws, regulations and official standards in Mexico, and for otherwise doing all things necessary to permit the Products to be imported, transported, manufactured and Commercialized in Mexico (the “Additional Registrations”) in accordance with applicable laws, regulations and official standards. The cost of obtaining the Additional Registrations shall be borne by Pfizer Mexico. Immediately upon obtaining a Registration, Pfizer Mexico shall provide copies of the same to Oscient.

SECTION 6. COMMERCIALIZATION

A. Commercializing

Pfizer Mexico shall be solely responsible for Commercializing the Product in Mexico and shall do so at its sole cost and expense using Diligent Efforts. Pfizer Mexico shall diligently obtain such Product pricing approvals as may be required in Mexico. In connection therewith, Oscient agrees to provide, as reasonably necessary, to Pfizer Mexico Ex-Factory price of the Product in the territories in which Oscient has rights under the Head License in order for Pfizer Mexico to comply with Mexican law.

B. Detailing and Promotional Plan

1. The Parties have agreed to an initial detailing and promotional plan, attached hereto as Exhibit “3” (the “Detailing and Promotional Plan”), for Commercializing the Product in Mexico, which includes, among other things, the annual number of Details to be performed and aggregate amount of Commercializing expenses to be incurred for three (3) years after the First

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Commercial Sale. Notwithstanding anything to the contrary herein, Pfizer Mexico at its sole discretion may reasonably and in good faith revise and amend such Detailing and Promotional Plan in the event that (i) there is a Generic Impact entry, or (ii) a black box warning in Mexico or the United States, or (iii) a Product recall in terms of section 12(D) of this Agreement.

2. Oscient agrees that in the event the Mexican Regulatory Authority does not approve any of the three key indications CAP, AECB or ABS, Pfizer Mexico and Oscient shall negotiate in good faith and amend the Detail and Promotional Plan, which shall have less FTEs. Further, subject to the provisions of Section 6(B)(1) herein, if ***** is launched in Mexico within the first three years from date hereof and subject to the terms and conditions provided herein, the Parties hereby agree to negotiate in good faith and amend the Detail and Promotional Plan, which shall have no fewer FTEs.

C. Performance Standards and Sales Activities

Except as provided in the in the Purchase Order, Pfizer Mexico shall, at its sole expense, manufacturing Product (pursuant to the rights granted in Section 4 above), finalize packaging, label, store, maintain, handle, ship, distribute, promote, and sell the Product in accordance with its own commercial practice with respect to regulated pharmaceutical products, current Good Manufacturing Practices and Good Clinical Practices, applicable Mexican laws, regulations and official standards and the requirements of regulatory authorities in Mexico. Pfizer Mexico shall avoid using any practice in the Commercialization of the Product that would prejudice Oscient’s name, the Trademarks, and the quality of the Products. Pfizer Mexico shall not promote or otherwise Commercialize the Product for ***** without Oscient’s prior written consent.

D. Training

Pfizer Mexico shall ensure that its sales force and employees are fully trained with respect to the Product and its own policies and procedures regarding the sale, distribution and use of the Product and reporting of Adverse Event information. Pfizer Mexico shall provide, in advance of use, all training materials and documentation relating to the Product to be used by Pfizer Mexico to Oscient.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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E. Sales Outside Mexico

Pfizer Mexico shall not: (i) adopt a policy of selling the Product which is supplied to it by Oscient outside of Mexico nor undertake the sale or promotion of sales of the Product which is supplied to Pfizer Mexico by Oscient outside of Mexico, (ii) seek customers or solicit orders from any prospective customer of Product which is supplied by Oscient whose principal address or place of business is located outside of Mexico, and/or (iii) provide any price quotations for the Product which is supplied to Pfizer Mexico by Oscient to any prospective customer whose principal address or place of business is located outside of Mexico. If Pfizer Mexico receives an order from a prospective customer located on any territories covered under the Head License, Pfizer Mexico shall immediately refer that order to Oscient. Without Oscient’s prior consent, Pfizer Mexico may not deliver or tender, or cause to be delivered or tendered, outside of Mexico, the Product (or any sample of the Product) which is supplied to Pfizer Mexico by Oscient. Pfizer Mexico shall not sell any Product which is supplied to Pfizer Mexico by Oscient to any person if it knows, or has reason to believe, that such purchaser intends to remove such Product from Mexico.

F. Product Inventory and Maintenance

Following the date of the First Commercial Sale of the Product, Pfizer Mexico shall maintain at all times an inventory of the Product in quantities sufficient to meet the reasonably anticipated demands of customers.

G. Advertising and Promotional Materials

1. Marketing and promotional materials related to the Product and prepared for use in Mexico by Pfizer Mexico or its Subdistributors (as defined in Section 14 below) (the “Mexico Promotional Materials”) shall be prepared in a manner consistent with Mexican law, regulations, and official standards. Oscient shall be presented and described as the party that developed the Product in all Mexico Promotional Materials. All Mexico Promotional Materials shall be provided to Oscient in advance of use by Pfizer Mexico, display the Trademarks, logos and trade dress of the Product and shall do so in a manner that promotes the Product and each of the Parties in a manner consistent with good commercial practice in dealing with regulated pharmaceutical products in Mexico. Oscient shall have the right, at its own expense and always complying with copyright laws and third party rights disclosed to it by Pfizer Mexico, to

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reproduce, distribute and otherwise use outside Mexico all Mexico Promotional Materials. Pfizer Mexico shall provide and distribute to customers and prospective customers advertising and promotional materials reasonably necessary to promote the Product in Mexico, as well as any warranties, instruction materials or other Product literature. Pfizer Mexico shall be responsible for all expenses relating to the advertising, promotion or sales of the Product in the Territory. Oscient will be responsible for any fees and expenses generated in connection with the reproduction, distribution and other use outside Mexico of any and all of the Mexico Promotional Materials.

2. With prior written authorization from Oscient, which authorization shall not be unreasonably withheld, Pfizer Mexico may exploit Oscient Promotional Materials, at Pfizer Mexico’s expense. Oscient hereby grants Pfizer Mexico non-exclusive, fully paid-up, license to use Oscient’s Promotional Materials pursuant to the provisions of the preceding sentence.

3. At the first meeting of the Steering Committee, Oscient shall provide Pfizer Mexico with all Product-related marketing, promotional and training materials prepared or owned by Oscient, including, but not limited to, related logos and graphics, for use by Pfizer Mexico in connection with the development of Mexico Promotional Materials. Oscient shall update the Steering Committee with respect to changes to such Product-related marketing, promotional and training materials, when applicable, and shall provided such changes to Pfizer Mexico in the next Steering Committee meeting held after such changes were made.

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SECTION 7. FINANCIAL PROVISIONS

A. Initial License Fee

In consideration of the license described in Section 1 hereof, Pfizer Mexico agrees to pay to Oscient a non-refundable license fee of $***** (USD) within the next three business days from the date hereof.

B. Approval Milestone Payments

In further consideration of the grant of the license by Oscient hereunder, after the achievement by Pfizer Mexico of each of the following milestones with respect to the Product, Pfizer Mexico shall pay the following non-refundable milestone payments:

Milestones	Payment (USD)
Regulatory Approval in Mexico for CAP and AECB	$	*	****
Regulatory Approval in Mexico for ABS	$	*	****
Regulatory Approval and launch of the Product for *****	$	*	****
Regulatory Approval of the Product for each additional indication within the categories set forth in Exhibit “4” (the “Additional Indication Milestones”)	$	*	****

Notwithstanding anything to the contrary set forth above, any Additional Indication Milestone payment may be reduced by ***** percent (*****%) of the reasonable out-of-pocket expenses incurred by Pfizer Mexico in conducting clinical trials related to such Additional Indication Milestone; provided that, an Additional Indication Milestone payment shall not be reduced by more than ***** dollars ($*****). Such clinical trial expenses incurred by Pfizer Mexico shall be subject to audit by Oscient pursuant to the terms of Section 8(A) herein. The Steering Committee may agree to expand the list of indications set forth in Exhibit “4” for the purposes of expansion of Additional Indication Milestones.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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C. Sales Milestone Payments

In further consideration of the grant of the license by Oscient hereunder, after the achievement by Pfizer Mexico or its Subdistributors of each of the following milestones with respect to the Product, Pfizer Mexico shall pay the following one-time non-refundable milestone payments:

Milestones	Payment (USD)
Annual Net Sales of Product in Mexico of greater than USD$*****	$	*****
Annual Net Sales of Product in Mexico of greater than USD$*****	$	*****

D. Royalties Prior to Patent Expiration or Invalidation

In further consideration of the grant of the license by Oscient hereunder, commencing on the date of the First Commercial Sale of each Product, Pfizer Mexico shall make the following non-refundable, quarterly royalty payments to Oscient for Net Sales of Product by Pfizer Mexico or its Subdistributors at the applicable rates set forth below (the “Patent Royalties”).

Annual Net Sales of up to USD $*****	*****	%
Annual Net Sales of between USD $***** and up to $*****	*****	%
Annual Net Sales of between USD $***** and up to $*****	*****	%
Annual Net Sales over USD$*****	*****	%

For purposes of this Section 7, Annual Net Sales shall be calculated based on the twelve (12) month period commencing on the first day of the first full calendar quarter following the First Commercial Sale of Product (the “First Sales Year”) and each twelve (12) month period thereafter; provided that, Annual Net Sales in the First Sales Year shall also include any Net Sales completed in the calendar quarter in which the First Commercial Sale occurred.

Patent Royalties shall be payable as set out above until the later to occur of: (i) the expiration, termination, cancellation or invalidation of the last to expire of the patent granted in Mexico set forth in Exhibit “5”, or (ii) introduction of a Generic Product by an independent third party in oral form; provided that, the Patent Royalties shall not be payable after the expiration, termination, cancellation or invalidation of the last to expire of all of the Patents.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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E. Royalties After Patent Expiration

Upon expiration of the Patent Royalties, Pfizer Mexico shall make quarterly royalty payments to Oscient for Net Sales of Product by Pfizer Mexico or its Subdistributors equal to: (i) ***** percent (*****%) of Net Sales, if Pfizer Mexico commits at least ***** percent (*****%) of the Details (calculated on an FTE basis) which were completed during the twelve (12) months immediately prior to the expiration of the Patent Royalties, and (ii) ***** percent (*****%) of Net Sales, if Pfizer Mexico commits less than ***** percent (*****%) of the Details (calculated on an FTE basis) which were completed during the twelve (12) months immediately prior to the expiration of the Patent Royalties (the “Trademark and Know-How Royalties”).

F. Generic Entry

1. If, as of the end of a calendar quarter at the end of or following the Post-Generic Year, Generic Product sales in Mexico during the 12-month period through the end of such calendar quarter result in a Generic Impact, then (i) Pfizer Mexico shall receive a dollar for dollar credit against future Patent Royalties equal to ***** percent (*****%) of the Patent Royalties payable with respect to either of the second or third calendar quarters during such 12-month period following the calendar quarter in which a Generic Impact occurred, and (ii) with respect to the fourth calendar quarter of such 12-month period, Pfizer Mexico shall be entitled to reduce the Patent Royalties otherwise payable with respect to such calendar quarter by ***** percent (*****%). Following such 12-month period, if as of the end of any calendar quarter a Generic Impact exists, Pfizer Mexico shall be entitled to reduce the Patent Royalties otherwise payable with respect to such calendar quarter by ***** percent (*****%).

2. If, as of the end of a calendar quarter at the end of or following the Post-Generic Year, Generic Product sales in Mexico during the 12-month period through the end of such calendar quarter result in a Significant Generic Impact, then (i) Pfizer Mexico shall receive a dollar for dollar credit against future Patent Royalties equal to ***** percent (*****%) of the Patent Royalties payable with respect to either of the second or third calendar quarters during such 12-month period following the calendar quarter in which a Significant Generic Impact occurred, and

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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(ii) with respect to the fourth calendar quarter of such 12-month period, Pfizer Mexico shall be entitled to reduce the Patent Royalties otherwise payable with respect to such calendar quarter by ***** percent (*****%). Following such 12-month period, if as of the end of any calendar quarter a Significant Generic Impact exists, Pfizer Mexico shall be entitled to reduce the Patent Royalties otherwise payable with respect to such calendar quarter by ***** percent (*****%).

G. Tax Withholding

1. All payments hereunder shall be made free and clear of any taxes, duties, levies, fees or charges; provided that, any income or other tax that one Party (the “Withholding Party”) is required by applicable laws to withhold and pay on behalf of the other Party under this Agreement (the “Withheld Party”) with respect to payments to be made to the Withheld Party under this Agreement, shall be withheld from such payments; provided however, that in regard to any tax so withheld, the Withholding Party shall give or cause to be given to the Withheld Party such assistance as may be reasonably necessary to enable the Withheld Party to claim any available exemption therefrom or credit therefor, and in each case shall furnish the Withheld Party with proper evidence of the taxes paid on its behalf.

2. Pfizer Mexico will withhold taxes at the lowest tax rate allowed in applicable tax treaties (currently 10% in accordance with Article 12 of the Treaty to Avoid Double Taxation Between the United States and Mexico) if Oscient provides the required documentation to Pfizer Mexico to enable Pfizer Mexico to withhold taxes at such lower tax rate. Such documentation, at the date hereof, and in accordance with the Mexican Income Tax Law and its Regulations, consists of a certificate of residence for tax purposes issued by the tax authorities of the United States or a certification issued by US tax authorities that Oscient filed an income tax return for the year previous to the year in question. Oscient represents that it is a U.S. resident for tax purposes and will provide such documentation within thirty (30) days from the date hereof; if a withholding obligation accrues before such delivery, Pfizer Mexico shall escrow the funds to be withheld pending receipt of such documentation.

3. Notwithstanding the foregoing, the Parties agree that any applicable value added tax or other similar taxes will be payable by Pfizer Mexico without reduction of payments to Oscient.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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H. Payment Terms

1. Within five (5) days of the end of each calendar quarter, Pfizer Mexico shall deliver to Oscient a report with respect to the immediately preceding calendar quarter, specifying: (i) the gross sales (if available) and Net Sales, including an accounting of deductions taken in the calculation of Net Sales; (ii) the applicable royalty rate under this Agreement; (iii) the royalties payable in Mexican pesos; (iv) the applicable exchange rate to convert from Mexican pesos to United States Dollars as provided below; (v) the total royalties payable in United States Dollars, and (vi) any reduction pursuant to Section 7(F) in Patent Royalties otherwise payable and relevant Pfizer Mexico unit sales data supporting such reduction. Unless otherwise expressly provided herein, Pfizer Mexico shall make any milestone, license or royalty owed to Oscient hereunder in arrears, within thirty (30) days of receipt of an invoice from Oscient to Pfizer Mexico for amounts owed pursuant to this Agreement; provided that such invoice comply with the applicable Mexican tax requirements as disclosed in advance by Pfizer Mexico from time to time. For purposes of determining when a sale of any Product occurs under this Agreement, the sale shall be deemed to occur on the earlier of (a) the date the Product is shipped, or (b) on the date of the invoice to the purchaser of the Product.

2. All amounts set out in this Agreement are expressed, and all payments under this Agreement shall be payable in dollars, legal tender of the United States of America. Pfizer Mexico shall convert Net Sales received in Mexican pesos or other foreign currencies into United States dollars, using the market rate as published by The Wall Street Journal, Eastern Edition, on the last business day of the accounting period for which payment is to be made. If The Wall Street Journal ceases to be published, then the rate of exchange to be used shall be that reported in such other business publication of national circulation in the United States as the Parties reasonably agree. All sums shall be payable in United States dollars by bank wire transfer in immediately available funds to the following account unless Pfizer Mexico is otherwise notified in writing by Oscient:

Bank Account:	Citizens Bank
	28 State Street
	Boston, MA 02109
	USA
	1-877-471-1961
Account Number:	1135568364
Bank ABA Number:	011500120

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3. Subject to the other terms of this Agreement, any payments not paid within the time period set forth in this Section 7(H) shall bear interest at a rate of ***** percent for the applicable month, from the due date until paid in full, provided that in no event shall said annual rate exceed the maximum interest rate permitted by law in regard to such payments. Such royalty payment when made shall be accompanied by all interest so accrued. Said interest and the payment and acceptance thereof shall not negate or waive the right of Oscient to any other remedy, legal or equitable, to which it may be entitled because of the delinquency of the payment.

4. No part of any amount payable to Oscient under this Agreement may be withheld or reduced due to any counterclaim, set-off, adjustment or other right which Pfizer Mexico might have against Oscient or any other person.

SECTION 8. RECORDS AND REPORTS

A. Records

1. Pfizer Mexico shall maintain complete and accurate records of all inventories, Product in storage, movements, shipments, sales and potential problems involving the Product by unit, by batch number and by customer. Upon request, Pfizer Mexico shall provide copies of such records to Oscient, and shall provide Oscient, or its representatives, with access to the place where the Product is stored and/or shipped and other facilities used by Pfizer Mexico in carrying out this Agreement, during normal business hours and upon reasonable notice, for the purpose of inspecting such facilities for compliance with the terms of this Agreement. Pfizer Mexico shall maintain all such records for at least five (5) years.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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2. Pfizer Mexico shall permit an independent certified accounting firm selected by Oscient to inspect and audit Pfizer Mexico’s records that relate to the Product to verify the accuracy of Pfizer Mexico’s royalty reports, shall permit such accounting firm and its employees access to all documents, whether in paper or electronic form, in its possession and control that relate to the Product, and shall allow the same to be copied. A copy of such auditing firm’s conclusions of its audit shall be furnished to Pfizer Mexico at least ten (10) days prior to disclosure to Oscient to allow Pfizer Mexico an opportunity to review the accuracy of the auditing firm’s conclusions. If any review reveals a deficiency in the calculation and/or payment of royalties by Pfizer Mexico, then (a) Pfizer Mexico shall promptly pay Oscient the amount remaining to be paid, and (b) if such underpayment is by ten percent (10%) or more, Pfizer Mexico shall pay the reasonable out-of-pocket costs and expenses incurred by Oscient in connection with such inspection and audit.

3. Pfizer Mexico shall permit Oscient or its representatives, upon prior reasonable notice, to perform an audit of its records, at reasonable times, relating to the Development and Commercialization of Product. The audit shall include, but is not limited to, examination of any investigator site used in the performance of the Development of Product, and the copying of data, analyses or other documentation relating to Development activities performed by Pfizer Mexico.

4. Upon request, Pfizer Mexico shall promptly provide to Oscient copies of any and all Pfizer Information.

B. Reports

1. Prior to the First Commercial Sale of the Product, Pfizer Mexico shall provide Oscient with written reports no less frequently than quarterly during the Term summarizing Pfizer Mexico’s efforts to Develop and Commercialize the Products hereunder, including clinical trial summaries, status on regulatory filings and submissions, communications to and from Regulatory Authorities and updates on future development plans. In addition, Pfizer Mexico shall provide Oscient with prompt written notice of the occurrence of the First Commercial Sale of any Product in Mexico.

2. On or before the First Commercial Sale and not later than November of each year during the Term of this Agreement, Pfizer Mexico shall submit to Oscient a business and marketing

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plan for the following year in connection with the Product (the “Annual Plan”). The Annual Plan shall be in a form reasonably required by Oscient, and shall include: (i) a description of the market and marketing, promotional and customer service programs anticipated for the following year and budgets for each, (ii) an outline of training and regulatory activities expected for the following year, (iii) until the Technology Transfer takes place a one-year forecast of purchases of the Product from Oscient and sales of the Product to customers, (iv) an inventory status report, and (v) such other information concerning the market, the status of customers and competitors, or such other matters related to the Product as Oscient may reasonably request.

3. Calculated from the First Commercial Sale, Pfizer Mexico shall deliver to Oscient quarterly reports (the “Quarterly Report”) relating to the calculation of amounts owed to Oscient as set out in Section 7. The Quarterly Report shall be in a form reasonably required by Oscient and shall include: (i) the volume of the Product purchased from Oscient and sales to customers during the preceding calendar quarter, (ii) an inventory status report, (iii) such other information concerning the market, the status of customers, or such other matters related to the Product as Oscient may reasonably request, (iv) a report of the total number of Sales Representatives promoting the Product, number of Details and Calls provided by Pfizer Mexico’s Sales Representatives for Product, including the promotional position of the Product in such Sales Representative’s Call plan (as calculated through a field call reporting system), including the position of the Product in such Sales Representatives product portfolio; and (v) until the Technology Transfer takes place and Pfizer Mexico begins manufacturing the Product in Mexico, a rolling one-year forecast broken down by calendar quarter of projected purchases of the Product from Oscient,. At any time during the Term of the Agreement, Pfizer Mexico agrees to make available to Oscient or its representatives, such books and records necessary to verify the accuracy of the Quarterly Report.

4. Pfizer Mexico shall promptly (and in any event within fifteen (15) business days) provide Oscient with written notice upon its achievement of each of the milestones set forth in Sections 7(B) and 7(C). In the event that Oscient believes any milestone payment is due pursuant to Sections 7(B) or 7(C) in spite of not having received notice from Pfizer Mexico, it shall so notify Pfizer Mexico and shall provide to Pfizer Mexico the data and information supporting its belief that the conditions for payment have been achieved. If Pfizer Mexico does not provide adequate

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evidence that such milestone has not been achieved within thirty (30) days of receipt of the data and information from Oscient, the conditions for payment shall be deemed to have been achieved.

5. Within ninety (90) days after the expiration of the Term or termination of this Agreement, Pfizer Mexico shall deliver to Oscient a final report containing the information set forth in Section 8(B)(3) covering the period from the date of the immediately preceding Quarterly Report to the expiration or termination date.

SECTION 9. EXPORT AND IMPORT

A. United States Export Prohibitions

1. Pfizer Mexico acknowledges and agrees that the Products, or technical data with respect thereto (including information, data and materials related to the Technology Transfer), that are sold or otherwise provided hereunder (including samples) may be subject to export and other foreign trade controls restricting the sale, re-export and/or transfer of such Products or technical data to certain countries or parties, including, but not limited to, licensing requirements under applicable laws and regulations of the United States and other jurisdictions. Any other provision of this Agreement to the contrary notwithstanding, Pfizer Mexico agrees that it will not sell or transfer the Product or technical information supplied under this Agreement except in full compliance with this Agreement and all applicable United States government requirements, including, but not limited to, the economic sanctions constraints administered by the United States Treasury Department and export control measures administered by the United States Department of Commerce. Any violation by Pfizer Mexico of this Section shall be deemed a material breach by Pfizer Mexico of this Agreement under Section 19(A).

2. The obligation of Oscient to supply the Product or technical data under this Agreement is subject to the ability of Oscient to supply such items consistent with the laws and regulations of the United States and other governments. Oscient reserves the right to not comply with any binding Product order, and to cancel any binding Product order under this Agreement if Oscient, in its sole discretion, determines that filling such an order or the performance of the transaction to which such order relates would violate this Agreement, any applicable law or regulation of the United States or any other government. Pfizer Mexico agrees that any such refusal or

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cancellation by Oscient shall not constitute a breach of any obligation under this Agreement and hereby waives any and all claims against Oscient for any loss, cost or expense, including consequential damages, that Pfizer Mexico may incur by virtue of such refusal or cancellation.

B. Mexican Import Requirements

Pfizer Mexico shall be responsible for the importation of the Product into Mexico, in its name as importer of record, and shall obtain at its expense, all permits and authorizations, and shall comply with all Mexican customs laws, regulations and official standards applicable to such importation. Oscient agrees to provide a certificate of origin for the Product and all reasonably necessary documentation, as requested by Pfizer Mexico for purposes of importing the Product into Mexico.

SECTION 10. REGISTRATIONS

1. Both Parties hereby authorize Jose Hinojosa C., Martin Michaus, Eduardo Kleinberg, and Adolfo Athie Cervantes, individually, or any other designee(s) as may be later agreed upon, at any time, (i) to review the file of the Patents and Trademarks held by the Mexican Institute of Intellectual Property (the “IMPI,” to use its Mexican initials), and (ii) to review, record or cancel the Summary Agreement (as defined below) with the IMPI for all legal effects.

2. The Parties agree to execute condensed versions of this Agreement (the “Summary Agreements”), in the Spanish language, and agree the Summary Agreements shall accurately reflect the main terms and conditions of this Agreement.

3. Within one hundred twenty (120) days of the date hereof, Oscient shall file all necessary documentation, including the Summary Agreements, in order to accurately reflect the license of rights granted under this Agreement to Pfizer Mexico.

SECTION 11. WARRANTY

1. Oscient warrants exclusively to Pfizer Mexico to manufacture the Product in accordance with applicable good manufacturing requirements and applicable laws, regulations and standards of the United States and of the United States Food and Drug Administration and as may be included in any regulatory approvals granted in the United States and/or Mexico. Oscient warrants exclusively to Pfizer Mexico that all of the Products shipped in accordance with this

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Agreement: (i) shall conform to and will have been manufactured in accordance with the Specifications, (ii) shall be manufactured in accordance with all applicable United States laws and regulations in effect at the time of manufacture, and (iii) shall not be adulterated or misbranded as a result of acts or omissions by Oscient. Oscient further warrants that all work and/or services supplied hereunder will be performed in a workmanlike manner. Except for what is provided in Section 21 (B), Oscient’s sole obligation and Pfizer Mexico’s sole remedy under this warranty is replacement of any Product or a refund of the purchase price that Oscient reasonably determines to be covered by this warranty.

2. Nothing in this Agreement is or shall be construed as:

(a) a warranty or representation by Oscient as to the patentability, validity or scope of any Patents licensed hereunder;

(b) a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted pursuant to this Agreement or otherwise is or will be free from infringement of patents, copyrights and other rights of third parties.

3. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, OSCIENT DOES NOT MAKE ANY REPRESENTATION OR EXTEND ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, OR OF VALIDITY OR NON-INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OF THIRD PARTIES, OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.

SECTION 12. ADVERSE EVENTS

A. Collection of Information

Pfizer Mexico shall be responsible for the receipt of all information relating to Adverse Events, Product complaints and medical inquiries in Mexico.

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B. Notice of Adverse Event Information

The Parties agree to comply with the Pharmacovigilance Joint Operating Policy attached hereto as Exhibit “10” with respect to post-marketing Adverse Event information; provided that, the Parties agree to negotiate a superseding Pharmacovigilance Joint Operating Policy upon termination of the Fill-Finish Supply Period to regulate post-marketing Adverse Event information for Product manufactured by Pfizer Mexico pursuant to the Active Pharmaceutical Ingredient Supply Agreement. Within a reasonable time frame after notice by Pfizer Mexico of its intent to conduct certain clinical activities pursuant to the terms of this Agreement, the Parties shall prepare and draft guidelines and procedures to govern pre-marketing and clinical Adverse Event information, such policies to parallel in material and applicable effects the policies and procedures set forth in Exhibit “10” hereto.

C. Product Complaints and Inquiries as to Quality

1. From the date when Regulatory Approval is granted and throughout the Term, Pfizer Mexico shall maintain a procedure, subject to review and approval by Oscient, to deal with Product complaints occurring in Mexico only, including inquiries related to the safety, identity, strength, quality or purity of the Product and any other matter related to the quality of the Product, whether or not such Product is manufactured by Oscient or its third party manufacturer. Oscient or its partners have the sole responsibility for maintaining a procedure to deal with Product complaints outside of Mexico. Pfizer Mexico shall investigate and respond to such complaints or quality inquiries in a timely manner, and shall, within one (1) business day of its receipt of such complaint or quality inquiry, forward all complaints and quality inquiries to Oscient or its designee and to such other persons as may be required to comply with Mexican laws and regulations. With respect to Pfizer Mexico’s obligations under this Section 12(C)(1), Pfizer Mexico shall disclose whether such complaint are related to a Product manufactured by Oscient or Pfizer Mexico.

2. (a) Oscient shall investigate Product complaints for Product manufactured by Oscient forwarded by Pfizer Mexico. Oscient shall comply with all reasonable Pfizer Mexico’s requests in connection with the investigation of any such Product complaint. Oscient shall provide Pfizer Mexico with information regarding any such Product complaint investigation as reasonably requested by Pfizer Mexico.

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(b) Oscient shall complete and document each Product complaint investigation for Product manufactured by Oscient within 30 calendar days after initial receipt of the complaint unless Oscient advises the investigation will take longer to complete. Pfizer shall be responsible for determining, in its reasonable discretion, when a complaint investigation has been completed and shall have sole responsibility for responding to the complainant.

(c) Oscient shall perform preliminary investigations for all expedited complaints for Products (including active pharmaceutical ingredient included in such Product) manufactured by Oscient. Such expedited complaints involve but are not limited to allegations of tampering or mixed product. Within three business days, Oscient must provide Pfizer a preliminary investigation report which shall include but is not limited to, review of manufacturing and/or packaging records, and review of analytical records. Oscient shall use reasonable efforts to conduct an evaluation of retain samples within three business days unless Oscient advises such evaluation will take longer to complete. Oscient shall use reasonable efforts to complete such expedited complaint investigations within 14 calendar days of initial receipt of the complaint unless Oscient advises such investigation will take longer to complete.

(d) Oscient shall notify Pfizer of a confirmed out-of-specification result pertaining to a complaint sample within 1 business day of confirming the out-of-specification result.

(e) The obligations of Oscient under this Section 12(C)(2) shall terminate upon the termination of the Fill-Finish Supply Period.

D. Product Recalls

In the event that (i) the Regulatory Authority or any other governmental agency or authority issues a request or orders that the Product be recalled, (ii) a court of competent jurisdiction orders that the Product be recalled, or (iii) Oscient determines that the Product should be recalled or a notice is required relating to restrictions on use of the Product, Pfizer Mexico shall attend to the same within Mexico and the Parties shall take all appropriate corrective action. In the event

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such action results from: (a) Oscient’s negligence or willful misconduct, Oscient shall be responsible for the expenses thereof, or (b) Pfizer Mexico’s negligence or willful misconduct, Pfizer Mexico shall be responsible for the expenses thereof within Mexico; otherwise, the Parties shall share equally the expenses of the action within Mexico. For purposes of this Agreement, the expenses of the action shall be the expenses of notification and return or destruction (if authorized by Oscient) of the Product, the cost of replacement of the Product, and any costs directly associated with the distribution of replacement Products. Pfizer Mexico and Oscient shall cooperate fully with one another in carrying out such action. For purposes of this Section 12(D), “Product” shall include all Product sold by Pfizer Mexico, whether or not such Product is manufactured by Oscient or its third party manufacturer.

E. Record Keeping

Pfizer Mexico shall retain a record of all Product related complaints, medical inquiries and Adverse Events occurring in Mexico for a period of not less than five (5) years beyond the termination date of this Agreement or for such longer period as may be required by applicable law.

SECTION 13. INTELLECTUAL PROPERTY

A. File and Maintain

1. Oscient, at its sole expense, shall directly or through a representative or third party, diligently file, prosecute and maintain the registration of the Patents and Trademarks in Mexico, subject, however, to Section 11(2). Oscient shall not allow any of the Patents or Trademarks to become inactive by failure to timely pay an annuity fee or such other maintenance fee.

2. Oscient will keep Pfizer Mexico reasonably informed of the status of such filing, prosecution and maintenance, including, without limitation, (i) by providing Pfizer Mexico with copies of all communications received from or filed with the IMPI with respect to the Patents and Trademarks, and (ii) by providing Pfizer Mexico a reasonable time prior to taking or failing to take any action that would materially affect the scope or validity of any of the Patents and Trademarks, with prior written notice of such proposed action or inaction so that Pfizer Mexico has a reasonable opportunity to review and comment. Oscient’s agreement and implementation of Pfizer Mexico’s comments should not be unreasonably withheld.

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B. Right to Use Oscient Intellectual Property

1. Subject to other provisions of this Agreement, Pfizer Mexico agrees that it will not at any time assert or claim any interest in, nor register or attempt to register, the Patents, Know-How or Trademarks or trademarks confusingly similar thereto, and will cooperate with Oscient to secure or maintain Oscient’s rights under the Patent Rights, Know-How and Trademarks in Mexico. All benefit and goodwill arising from Pfizer Mexico’s use of the Trademarks shall inure to the benefit of Oscient.

2. In performing its obligations pursuant to this Agreement, Pfizer Mexico shall have the right, granted to it in accordance with Section 1(A), to use the Trademarks in Mexico solely to Commercialize the Product in Mexico, such uses including those in connection with promotional and sales activities in the form in which they are displayed on the labels, packaging and advertising for the Product as provided by Oscient, or as approved in writing in advance by Oscient. This Agreement shall not constitute a right to use the Trademarks for any other purpose. Pfizer Mexico shall not alter the Trademarks without the prior written consent of Oscient.

3. To the extent that Pfizer Mexico creates any advertising materials, the Trademarks of Oscient used by Pfizer Mexico shall conform as to artwork, lettering, color and size with those used by Oscient and shall identify Oscient, or Oscient’s designee, as the owner of such Trademarks, if Oscient provides notice of such designee to Pfizer Mexico.

C. Infringement or Misappropriation of Intellectual Property

If either Party learns of an infringement or threatened infringement of the Patents or Trademarks, or of a misappropriation of Know-How, in Mexico in which exists a colorable cause of action for infringement, including patent infringement or provisional rights, or for misappropriation of trade secrets, the Party first learning of or discovering the alleged infringement or misappropriation shall promptly notify the other Party in writing and shall provide the other Party with all information reasonably available to the notifying Party evidencing such

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infringement or threatened infringement, or of such misappropriation. Upon such notice, the Parties shall in good faith consult in an effort to determine whether a reasonably prudent owner or licensee of intellectual property would institute litigation to enforce the rights at issue in light of all relevant business, economic, and legal factors (including the projected cost of litigation, the likelihood of success on the merits, the probable amount of any damage award, the prospects for satisfaction of any judgment against the alleged infringer or other potential defendant, the possibility of counterclaims against the Parties or a party related thereto, the diversion of Oscient’s and Pfizer Mexico’s human and economic resources, the impact of any possible adverse outcome on Oscient or Pfizer Mexico, and the effect any publicity might have on Oscient’s or Pfizer Mexico’s respective reputations and goodwill).

If Pfizer Mexico has standing, Pfizer Mexico shall have the right, but not the obligation, to bring, defend and maintain any appropriate suit or action, or commence settlement negotiations with an alleged infringer, or other potential defendant, for abatement of the infringement or threatened infringement of the Patents or Trademarks, or of the misappropriation of the Know-How, in Mexico, at Pfizer Mexico’s sole expense. Oscient or its designee shall have the right to participate in any such suit or action using independent counsel, at its sole expense. If Pfizer Mexico lacks such standing and requests Oscient to join Pfizer Mexico as a party in such suit or action in order for Pfizer Mexico to bring such an action, Oscient shall execute all papers and perform such other acts as may be reasonably requested by Pfizer Mexico, at Pfizer Mexico’s sole expense. Any amount recovered by Pfizer Mexico as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending or maintaining such action. The balance (the “Net Recovery”) shall be for the sole benefit of Pfizer Mexico. The Net Recovery shall be considered as Net Sales (as defined herein), subject to the milestones and royalty payments set forth in Sections 7(C) and 7(D) herein, and distributed pursuant to the terms of this Agreement.

If Pfizer Mexico does not initiate suit or action including settlement negotiations with an alleged infringer, or other potential defendant, within ***** days after first notice of infringement or threatened infringement of the Patents or Trademarks, or of misappropriation of Know-How received either from Oscient or the alleged infringer or potential defendant, or if having initiated such suit or action it thereafter does not diligently prosecute such suit or action, Oscient or its

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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designee shall have the right, but not the obligation, to bring, defend, and maintain any appropriate suit or action of the infringement or threatened infringement, or of a misappropriation of Know-How, at Oscient’s sole expense. If Oscient requests Pfizer Mexico to join Oscient or its designee as a party in such suit or action, Pfizer Mexico shall execute all papers and perform such other acts as may be reasonably requested by Oscient, at Oscient’s sole expense. Pfizer Mexico shall have the right to participate in any such suit or action using independent counsel, at its sole expense. Any amount recovered by Oscient or its designee as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending, and maintaining any such suit or action. The balance shall be divided equally between the Parties.

Irrespective of which party initiates such a suit or action as described above, Oscient and Pfizer Mexico shall in good faith cooperate to execute a uniform litigation strategy so as to not hinder or damage the strategy of the other Party; provided that, Oscient cannot make any representations on behalf of its third party designees.

D. Third Party Claims

In the event a third party asserts a cause of action (arising from the Commercialization or Development of Product in Mexico) concerning alleged infringement of the third party’s patent or trademark, or misappropriation of its know-how, or in the event certain or all of the Patents or Trademarks are the subject of a legal action by a third party including a declaratory judgment action, an interference, inter partes reexamination, or opposition proceeding, the Parties shall confer and determine whether to defend and how best to control the defense of any such third party action. If the Parties disagree whether a defense should be undertaken, then the Party desiring to defend such action or proceeding, if the Party has standing, may proceed with such defense, but shall be under no obligation to do so, and shall pay its own expenses. In the event the Parties agree that the third party action should be defended, such defense strategy should be controlled by Pfizer Mexico, although each Party shall have the right, at its own expense, to participate in such defense, and to be represented in any such third party action by counsel of its choice at its sole discretion. With respect to any such third party action, the Party entitled to control defense shall also have the right to control settlement of such third party action; provided, however, that no settlement shall be entered into without the written consent of the other Party,

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which consent shall not be withheld unreasonably. To the extent a Party decides not to participate in defending in any such third party action, the participating Party shall keep the other Party reasonably informed, in writing, of the progress of any such third party action.

E. Safeguarding Marks

Pfizer Mexico shall, at Oscient’s expense, provide all reasonable assistance to Oscient, and shall forthwith execute any document necessary for the recording, registration or safeguarding of Oscient’s rights in the Patents, Know-How and Trademarks in respect of the carrying out of this Agreement and/or the Commercialization of the Product under the Trademarks, in a form satisfactory to Oscient.

F. Improvements

The Parties agree that any Improvements (and any patents that may issue therefrom) will be jointly owned by the Parties (regardless of inventorship).

Subject to the terms of this Agreement, the Parties agree that any improvements, other than Improvements, including any other inventions or developments with respect to the Product including any improvements to the manufacturing process as contemplated in Section 4(B) (“Other Improvements”), (and any patents that may issue thereon), shall be solely owned by the Party that invented such Other Improvements; provided that, Pfizer Mexico hereby grants to Oscient a non-exclusive, world-wide (not including Mexico during the Term), royalty-free, paid-up, irrevocable license (including the right to grant sub-licenses) to make, have made, use, import, offer for sale, sell and otherwise transfer or dispose of products under any Other Improvements made by Pfizer Mexico to the Products. To the extent any Other Improvements or other inventions or developments with respect to the Product is invented by both Parties, such Other Improvements or other inventions or developments (and any patents that may issue thereon) shall be jointly and equally owned by the Parties. In case of a dispute between the Parties over Other Improvements, inventorship shall be determined pursuant to United States patent law.

The Parties agree to jointly cooperate in modifying any patents or patent applications related to and including the Patents (pursuant to the terms set forth in Section 13(A)(2)) or applying to

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register new patents, as necessary, to protect any such jointly owned Improvements or Other Improvements or other inventions or developments, provided that (i) no such registration shall prejudice the rights of Oscient under the Patents, and (ii) Pfizer Mexico acknowledges that it does not have the right to conduct non-clinical research and drug development activities of the Product. Pfizer Mexico agrees to Oscient’s right to commercialize any and all Improvements and other jointly owned Other Improvements or other inventions or developments, which right shall be non-exclusive inside of Mexico and exclusive outside of Mexico, without any consent of, or obligation to account or otherwise pay compensation to, Pfizer Mexico.

Either Party may assign or otherwise transfer its joint ownership interest in whole or in part, in any or all Improvements (and any patents that may issue thereon) and other jointly owned Other Improvements or other inventions or developments in its discretion.

SECTION 14. SUBDISTRIBUTORS

Pfizer Mexico may appoint subdistributors within Mexico to Commercialize the Product, with the advance written consent of Oscient, provided such consent will not be unreasonable withheld by Oscient (each a “Subdistributor”), and Oscient shall then record with the IMPI the sub-sublicense granted to the Subdistributor, at the expense of Pfizer Mexico. No appointment of a Subdistributor shall be considered as an assignment of Pfizer Mexico’s rights and obligations under this Agreement nor shall it have the effect of substituting the Subdistributor for Pfizer Mexico with respect to Oscient for purposes of this Agreement. All obligations of Pfizer Mexico under this Agreement shall continue to apply with respect to any sales of the Product made by a Subdistributor, Pfizer Mexico shall be responsible for ensuring compliance by Subdistributors with the obligations of Pfizer Mexico under this Agreement, and Pfizer Mexico shall be directly liable to Oscient for any failure by a Subdistributor to comply with the obligations of Pfizer Mexico under this Agreement. Any and all grant of rights to a Subdistributor shall be consistent with the terms and conditions of this Agreement, and shall provide for termination upon termination of this Agreement. Pfizer Mexico shall provide Oscient with a copy of each such agreement with a Subdistributor within thirty (30) days of execution. Any Subdistributor shall perform the obligations set forth in Sections 15 and 19 with respect to any Regulatory Approvals which may be granted or transferred to such Subdistributor pursuant to the terms of this Agreement.

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SECTION 15. POWER OF ATTORNEY

Within ten (10) business days from the execution of this Agreement, Pfizer Mexico shall grant to Oscient an irrevocable special power of attorney, substantially in the form attached hereto as Exhibit “6,” to one or more individuals designated by Oscient, authorizing the grantees, upon any termination of this Agreement pursuant to its terms, to act on behalf of Pfizer Mexico in any transactions with the Regulatory Authorities, including those transactions related to obtaining, maintaining, accessing, and assigning (in the event of the termination of this Agreement) the Regulatory Approval and the Additional Registrations. Pfizer Mexico hereby agrees to deliver to Oscient within a term of ten (10) business days after the execution of this Agreement, two certified copies of the notarial deeds evidencing such power of attorney. Oscient hereby agrees not to exercise any of the faculties granted under such power of attorney without prior written notice five (5) business days in advance from the moment of exercise of such faculties.

SECTION 16. HEAD LICENSE

1. Oscient agrees to use best efforts in performing its obligations under and maintaining in full force and effect the Head License. Oscient further agrees not to terminate or accept the termination of the Head License during the Term, without the express written consent of Pfizer Mexico unless such termination is as a result of any breach by Pfizer Mexico under this Agreement. Pfizer Mexico acknowledges that performance by Oscient of its obligations under this Agreement is conditional upon the Head License remaining in full force and effect and Pfizer Mexico therefore agrees that Oscient shall not be liable to Pfizer Mexico for any default by Oscient under this Agreement in the event the Head License is terminated prior to the termination of the Term or of this Agreement, provided the same has not occurred through any breach of the Head License by Oscient not caused by Pfizer Mexico. In the event that the Head License terminates prior to the expiration or termination of this Agreement, without the consent of Pfizer Mexico or through no breach of the Head License by Oscient, this Agreement shall also terminate at the same time and neither Party shall have any further liability to the other under this Agreement, with the exception of any default by the Parties under this Agreement or with respect to rights and obligations arising prior to the termination of this Agreement.

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2. Pfizer Mexico agrees that it shall not do anything to cause the Head License to be terminated or which would create a default thereunder.

SECTION 17. NON-COMPETITION

During the Term and for ***** months thereafter, Pfizer Mexico agrees for itself and on behalf of its directors, officers and employees that it and they shall not directly or indirectly Commercialize in Mexico oral pharmaceutical products which are (i) members of *****, and (ii) ***** (a “Competitive Product”); provided that, oral pharmaceutical products which are indicated for *****, shall not be considered Competitive Products so long as Oscient has not agreed to allow Pfizer Mexico to Commercialize the Product for ***** pursuant to Section E(2) herein. The Parties hereby agree that the provisions of this Section 17 do not apply to any products and all products that are commercialized, sold, imported, and/or marketed or otherwise dealt with by Pfizer Mexico or its affiliates as of the date of execution of this Agreement.

Notwithstanding anything contained herein, Pfizer Mexico will not be subject to the non-competition obligation provided in this Section 17, in the event this Agreement is terminated by Pfizer Mexico based on a material breach not cured by Oscient pursuant to the terms contained herein.

SECTION 18. CONFIDENTIALITY

A. Non-Disclosure of Confidential Information

Any recipient of a Party’s Confidential Information (the “Receiving Party”) agrees that the Party disclosing such Confidential Information (the “Disclosing Party”) has a proprietary interest in any Confidential Information provided to the Receiving Party by the Disclosing Party, whether in connection with this Agreement or otherwise. All Confidential Information, other than Improvements made by Pfizer Mexico or other improvements, inventions or developments made jointly by the Parties, shall remain the exclusive property of the Disclosing Party during the Term and thereafter. The Receiving Party shall disclose Confidential Information only to those of its agents and employees to whom it is necessary in order to carry out their duties as limited by the terms and conditions of this Agreement. During the Term and thereafter, the Receiving Party shall ensure that all Confidential Information shall be maintained in strict confidence by such agents and employees and shall not be used for any purpose other than in

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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connection with the Receiving Party’s performance of its duties under this Agreement. The Receiving Party shall, at its expense, return to the Disclosing Party the Confidential Information in its possession or control, including that given to its agents and employees, as soon as practicable after the termination of this Agreement. The terms and conditions of this Agreement shall be considered Confidential Information of each Party.

B. Exclusions to Non-Disclosure Restriction.

The Receiving Party shall not be liable for the disclosure of Confidential Information to the extent that the Confidential Information so disclosed (i) was in the public domain at the time of disclosure without breach of this Agreement, (ii) was known to or contained in the records of the Receiving Party from a source other than the Disclosing Party at the time of disclosure by the Disclosing Party to the Receiving Party and can be so demonstrated by written records of the Receiving Party, (iii) was independently developed and is so demonstrated by written records of the Receiving Party promptly upon receipt of the documentation and technology by the Receiving Party, (iv) becomes known to the Receiving Party from a source other than the Disclosing Party without breach of this Agreement by the Receiving Party and can be so demonstrated, or (v) is required by law, regulation, rule, act or order of any Governmental Authority by the Receiving Party; provided, however, if reasonably possible, such Receiving Party gives the Disclosing Party sufficient advance written notice to permit it to seek a protective order or other similar order with respect to such Confidential Information and, thereafter, the Receiving Party discloses only the minimum Confidential Information required to be disclosed in order to comply.

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C. Publicity

The Parties shall agree upon and issue a press release or other public announcement concerning this Agreement to be released as promptly as practicable after execution hereof. Otherwise, and except for references to, or republication of, such press release, the Parties shall keep the terms and conditions of this Agreement confidential, and no public statements concerning the existence or terms of this Agreement shall be made or released in any medium without the prior approval of both Parties. Notwithstanding the above, the Parties each acknowledge that Oscient is a reporting company under the Securities Exchange Act of 1934 and that, as such, it may make any public announcements regarding the execution, delivery, performance or terms of this Agreement that it determines, in its sole reasonable discretion, are necessary or appropriate in light of its status as a public reporting company. Once such press release or any other written statement is approved for disclosure by both Parties, either Party may make subsequent public disclosure of the contents of such statement without the further approval of the other Party.

SECTION 19. TERMINATION

A. Material Breach

If either Party materially breaches this Agreement, which breach is not cured within ***** days of notice thereof from the non-breaching Party to the breaching Party, the non-breaching Party may terminate this Agreement upon notice to the breaching Party following the expiration of the cure period.

B. Challenge to Patent or Trademarks

If Pfizer Mexico challenges the validity of any of the Patents or Trademarks, Oscient may immediately terminate this Agreement.

C. Termination for Other Causes

Either Party may terminate this Agreement if: (i) an Adverse Event occurs that, in the opinion of one of the Parties, acting reasonably, discloses new toxicity, safety findings or side effects that are sufficiently severe to justify the discontinuance of the distribution and sale of the Product in Mexico, (ii) the other Party becomes insolvent or becomes subject to any order for relief under any bankruptcy, liquidation, insolvency or similar law or the use, (iii) the Commercialization of

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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the Product is found by the competent Mexican Government Authorities to constitute an infringement or misappropriation of third party intellectual property rights, or (iv) a formal rejection is received from Regulatory Authorities and the Parties agree that regulatory approval of the Product is not achievable.

D. Oscient Right to Terminate

Oscient shall have the right to terminate this Agreement, subject to the notification and cure provisions set out in Section 19(A) above, if: (i) Pfizer Mexico has not submitted the dossier for market approval for the Product in Mexico on or before ***** months from the date of execution of this Agreement, or (ii) the percentage (set forth below) of the minimum Detailing requirement (expressed in terms of FTEs) by Pfizer Mexico set forth in the Detailing and Promotional Plan for any of the first three years after the First Commercial Sale (referenced as “Launch Date” in the table below) is not achieved by Pfizer Mexico; provided that, Pfizer Mexico maintains its rights to revise and amend such minimum Detailing pursuant to the provision of Section 6(B)(2)::

First Launch Date Year	Percentage of Planned Details
First 12 Month Period after Launch Date	*****% of Planned Details (expressed in terms of FTEs)
Second 12 Month Period after Launch Date	*****% of Planned Details (expressed in terms of FTEs)
Third 12 Month Period after Launch Date	*****% of Planned Details (expressed in terms of FTEs)

Calculation of the amounts set out in the table above shall be based on Pfizer Mexico’s internal automated call reporting system reports and/or the Quarterly Reports submitted to Oscient, as provided in Section 8(B), and may be verified by Oscient as provided in Section 8(B).

E. Pfizer Mexico Right to Terminate

Pfizer Mexico shall have the right to terminate this Agreement:

(i) without cause after the first anniversary of the First Commercial Sale upon six (6) months prior written notice to Oscient, or

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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(ii) upon written notice to Oscient, with immediate effect, if Pfizer Mexico is not allowed to reasonable inspect the batches of Product produced by Oscient’s manufacturer pursuant to the provisions of Section 4(B)(1); and

(iii) upon written notice to Oscient, with immediate effect, if at any time during the Term of this Agreement, Oscient becomes an Affiliate of an entity selling or distributing a Competitive Product in Mexico.

F. Effect of Termination

1. Upon the expiration of the Term or in the event of the termination of this Agreement for any other reason, Pfizer Mexico shall transfer, assign and fully release to Oscient, or its designee, at Oscient’s expense, any and all Regulatory Approval for the Products in Mexico obtained by Pfizer Mexico pursuant to this Agreement, on or before the expiry of ten (10) business days after such expiration or termination (the “Period”). For purposes of the foregoing, Pfizer Mexico shall execute an assignment (the “Assignment”) substantially in the form attached to this Agreement as Exhibit “7” or a document having a similar purpose, as may be required by the Regulatory Authorities, to transfer Regulatory Approval to Oscient or its designee, and Pfizer Mexico agrees to appear before a notary public of Oscient’s choice to execute the Assignment within the Period so that Oscient may continue with the actions necessary to register the Assignment.

2. Upon the expiration of the Term or termination of this Agreement, Pfizer Mexico shall cease (and shall cause any Subdistributor to cease) Commercializing and/or manufacturing the Product or displaying or using the Trademarks and the sublicense granted pursuant to Section 1 herein shall automatically terminate.

3. Upon the expiration of the Term or termination of this Agreement, Pfizer Mexico shall cease to use the Trademarks and practice under the Patents and authorizes Oscient to apply for the cancellation of the sublicense registration with the IMPI.

4. Upon the expiration of the Term or termination of this Agreement, Pfizer Mexico shall immediately deliver to Oscient, or such other person as it may designate, all promotional

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material, including catalogues, Product price lists, and any other documents or material (including any material delivered in electronic form and Confidential Information) provided by Oscient to Pfizer Mexico or prepared or developed by Pfizer Mexico with respect to the Product or its Commercialization in Mexico.

5. From and after the expiration of the Term or termination of this Agreement, Pfizer Mexico shall cooperate with Oscient, its representatives and agents, including any new distributor designated by Oscient in place of Pfizer Mexico, in taking over the importing into Mexico and the Commercialization of the Product in place of Pfizer Mexico for a period of ***** months.

6. From and after the termination of this Agreement, Pfizer Mexico shall have a period of ***** days to sell its remaining inventory of the Product, provided it shall do so at a price not less than its market price in effect immediately prior to the termination.

7. From and after the termination of this Agreement, the Oscient license of Pfizer Information set forth in Section 2 and the data set forth in Section 5(F) shall be expanded to allow Oscient to use such Information and data in Mexico.

G. Surviving Provisions.

Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Sections 2, 7, 8(A), 8(B)(5), 11(2), 11(3), 12(A), 13(F), 15, 17, 18, 19(F), 19(G), 21, 22, 23 and 24 as well as any rights or obligations otherwise accrued hereunder (including any accrued payment obligations), shall survive the expiration or termination of the Term.

SECTION 20. FORCE MAJEURE

If the performance of either Party (excluding any payment obligation under this Agreement) is prevented, restricted or interfered with by reason of any event or cause whatsoever beyond the reasonable control of the Party so affected, such Party, upon prompt notice to the other Party, shall be excused from performance to the extent of such prevention, restriction or interference; provided that such cause is not the result of a breach of this Agreement, and only for the duration of the event or cause. Upon the occurrence of such event or cause, the Party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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SECTION 21. INDEMNITY

A. Pfizer Mexico Obligation

Subject to compliance by Oscient with its obligations hereunder Pfizer Mexico agrees to defend, indemnify and hold harmless Oscient and its agents, officers, directors and employees from and against all demands, claims, actions, causes of action, suits, proceedings, hearings, investigations, assessments, liabilities, losses, damages, costs and expenses including without limitation interest, penalties and disbursements (including reasonable attorneys fees) to the extent resulting from: (i) a breach by Pfizer Mexico or its Subdistributors of the terms and conditions of this Agreement, or any misrepresentation or breach of the representations made by Pfizer Mexico in this Agreement, (ii) any gross negligence, willful misconduct or illegal act of Pfizer Mexico or its Subdistributors, (iii) the Development or Commercialization of the Product by Pfizer Mexico, or its Subdistributors, including, without limitation, (A) any actions taken by Pfizer Mexico related to obtaining or filing for Regulatory Approvals, or (B) any actual or alleged injury to a Person or property or death resulting from Pfizer Mexico’s negligence in the manufacture, storage, handling, transportation, maintenance or other activity related to the Development and/or Commercialization of the Product; provided that, Pfizer Mexico shall have no responsibility under this Section 21(A) with respect to the Mexico Promotional Materials, data, studies or information provided by Pfizer Mexico for use by Oscient outside Mexico, and/or (iv) the importation of the Product into Mexico, except to the extent of Oscient’s responsibility therefore under Section 22(B) herein.

B. Oscient Obligation

Subject to compliance by Pfizer Mexico with its obligations hereunder, Oscient agrees to defend, indemnify and hold harmless Pfizer Mexico and its agents, officers, directors and employees from and against all demands, claims, actions, causes of action, suits, proceedings, hearings, investigations, assessments, liabilities, losses, damages, costs and expenses including without limitation interest, penalties and disbursements (including reasonable attorneys fees) to the extent resulting from: (i) a breach by Oscient of the terms and conditions of this Agreement or a

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Purchase Order, or any misrepresentation or breach of the representations made by Oscient in this Agreement, (ii) any actual or alleged injury to a Person or property or death resulting from the use or consumption in accordance with the IPP by any Person of any Product supplied by Oscient under this Agreement, unless (A) such injury or death to any Person was a result of Pfizer Mexico’s storage, handling, transportation, manufacture, maintenance or other activity related to the Development and/or Commercialization by Pfizer Mexico or its Subdistributor of the Product, or (B) the use or consumption by such Person of such Product was related to the treatment of an indication for which approval in Mexico was not supported by the data or information provided by Oscient pursuant to Section 5(C) above and/or (iii) any gross negligence, willful misconduct or illegal act of Oscient.

C. Contribution

In order to provide for just, equitable and conscionable contribution in circumstances in which the indemnification provided for in Sections 21(A) and 21(B) both apply in accordance with their respective terms, the Parties agree to the extent mandated by a court of law or as otherwise agreed to by the Parties to contribute proportionally to the aggregate losses resulting from demands, claims, actions, causes of action, suits, proceedings, hearings or investigations of third parties (“Third Party Claims”).

D. Notice of Claims

A Party (“Indemnified Party”) shall promptly notify the other Party (“Indemnifying Party”) of any liability in respect of which the Indemnified Party intends to claim an indemnification against the Indemnifying Party, and Indemnifying Party shall thereupon assume and have exclusive control over the defense thereof with counsel selected by the Indemnifying Party that is reasonably satisfactory to the Indemnified Party. The Indemnified Party shall have the right to fully participate in any such action or proceeding and to retain its own counsel, with the reasonable fees and expenses to be paid by the Indemnifying Party if representation of the Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate under applicable standards of professional conduct due to actual or potential differing interests between the Parties. The failure to deliver notice to the Indemnifying Party within a reasonable time after the commencement of such action, to the extent prejudicial to the Indemnifying

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Party’s ability to defend such action, shall relieve the Indemnifying Party from its indemnification obligations hereunder, but the failure to so deliver notice to the Indemnifying Party shall not relieve it of any liability that it may have to the Indemnified Party otherwise than as aforesaid.

E. Sole and Exclusive Remedy.

The Parties acknowledge and agree that the remedies provided for in this Agreement shall be the Parties’ sole and exclusive remedy with respect to the subject matter of this Agreement, except for claims based on fraud or willful misconduct.

F. Survival.

The obligations of the Parties contained in this Section 21 shall survive the termination of this Agreement and shall remain in full force and effect, regardless of any investigation made by or on behalf of either Party, for a period of ***** months after such termination; provided, that if prior to the end of such *****-month period, a claim for indemnification with respect thereto shall have been properly made hereunder, this Section 21 shall survive for purposes solely of such claim until such claim has been finally adjudicated or settled.

SECTION 22. DISPUTE RESOLUTION

A. Alternative Dispute Resolution and Arbitration

All disputes arising between the Parties with respect to this Agreement shall be resolved as provided in this Section. Any such dispute that the Parties are unable to resolve directly shall be referred to the Steering Committee, and if the Steering Committee is unable to resolve such dispute during a period of thirty (30) days either Party may refer to its Country Manager in the case of Pfizer Mexico and in case of Oscient to its Chief Executive Officer for attempted resolution by good faith negotiation. If such individuals are unable to resolve such dispute within thirty (30) days after referral, then either Party may thereafter submit the dispute to be decided by binding arbitration according to the rules and procedures of the American Arbitration Association (“AAA”) for commercial arbitration. The arbitration shall take place in New York, New York. Unless the Parties agree otherwise, there shall be a single arbitrator selected by agreement among the Parties or, if they cannot agree, one shall be designated by the AAA. The

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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prevailing Party is entitled to recover its attorney’s fees and costs. The award of the arbitrator shall be final and binding upon the Parties and may be confirmed by any court having jurisdiction over the Parties and the controversy.

B. Equitable Relief

Notwithstanding anything to the contrary in this Agreement, either Party will have the right to seek temporary injunctive relief in any court of competent jurisdiction in the State of New York as may be available to such Party under the laws and rules applicable in such jurisdiction with respect to any matters arising out of the other Party’s performance of its obligations under this Agreement.

C. Service of Notice

The Parties irrevocably appoint CT Corporation System having an address at 111 Eight Avenue, New York, New York 10011, as agent for service of process to receive on behalf of such Parties, service of any process, notice, or summons (including submission to arbitration) in any action, suit, or proceeding arising out of or in connection with this Agreement. For this purpose, Pfizer Mexico shall follow the appropriate procedure provided by CT Corporation System to be name them as agent of service, within ten (10) business days after the date hereof, and shall provide to Oscient evidence of such designation promptly thereafter; provided that, such procedure shall meet the requirements of Mexican law (including notarization and apostilling), and shall be in form and substance satisfactory to Oscient. Notwithstanding the foregoing, service of any process or delivery of any notice (including submission to arbitration) upon Pfizer Mexico may also, at the option of Oscient, be made by any legally acceptable manner at the following address, in accordance with the laws of Mexico:

Paseo de los Tamarindos #40,

Bosques de las Lomas,

Mexico Distrito Federal, 05120

SECTION 23. DEFINITIONS

The definitions in this Section 23 shall apply equally to both the singular and plural forms of the terms defined. As used in this Agreement, (i) the words “include”, “includes” and “including”

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shall be deemed to be followed by the phrase “without limitation”; (ii) the words “hereof”, “herein”, “hereby” and derivatives or similar words refer to this entire Agreement; and (iii) all references to attachments, exhibits and schedules shall be deemed references to Sections of this Agreement and attachments, exhibits and schedules to this Agreement unless the context shall otherwise require.

“ABS” shall mean acute bacterial sinusitis.

“Actual Packaging-Related Manufacturing Costs” shall mean the expenses incurred by Oscient in connection with the packaging of the Product as further delineated pursuant to the categories set forth in Schedule II of this Agreement and that shall be negotiated in good faith between Oscient and Patheon Pharmaceuticals Inc.

“Actual Per Tablet Cost” shall mean: (a) if Product is manufactured by Oscient or a subcontractor therewith, the direct labor and materials cost, regulatory compliance activities, quality assurance and quality control, supply chain management, pharmacovigilance and logistics calculated in accordance with U.S. generally accepted accounting principles consistently applied, or (b) (i) the price charged to Oscient by a third party manufacturer for the manufacture and supply of each Product’s active pharmaceutical ingredient and fill and finish of the Product tablets, (ii) Oscient’s overhead reasonably allocable to regulatory compliance activities, quality assurance and quality control, supply chain management, pharmacovigilance and logistics, provided that, such Oscient overhead expenses to be charged to Pfizer Mexico shall be no greater than $*****, and (iii) customs duties, fees, taxes and other charges incurred in importing the active pharmaceutical ingredient into the United States; provided that, the Parties agree that Actual Per Tablet Costs shall not include any Packaging-Related Manufacturing Costs.

“Additional Products” shall mean any pharmaceutical product that (i) is not a Product, and (ii) is a formulation of a product containing gemifloxacin as an active ingredient or any single enantiomer-based product containing gemifloxacin as an active ingredient.

“Adverse Event” shall mean any untoward medical occurrence in a patient or subject who is administered a Product, whether or not such Product was manufactured by Oscient or its third party manufacturer, whether or not considered related to the Product, including, without limitation, any undesirable sign (including abnormal laboratory findings of clinical concern), symptom or disease temporally associated with the use of such Product.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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“AECB” shall mean acute bacterial exacerbations of chronic bronchitis.

“Call” shall mean a personal visit by a Sales Representative to a member of the Target Audience in Mexico during which such Sales Representative Details a Product.

“CAP” shall mean community-acquired pneumonia of mild-to-moderate severity.

“Commercialize” and “Commercialization” shall mean, with respect to a Product, all activities relating to the marketing, promotion, packaging, handling, distribution, use, storage, sale, offer and importation for sale of the Product in Mexico.

“Compound” shall mean the form of gemifloxacin mesylate having the molecular formula *****.

“Confidential Information” shall mean all information not known to the general public or of a confidential nature disclosed (in writing, verbally, electronically, or by any other means directly or indirectly) by Oscient to Pfizer Mexico before or after the date of this Agreement, including, without limitation, any information relating to (i) the manufacture, testing, price, complaints about, Regulatory Approvals for, customers of, or defects in, the Product, and (ii) Oscient’s inventions, discoveries, improvements, methods, products, finances, operations, processes, plans, product information (including new or prototype products), know-how, design rights, trade secrets, market opportunities, customer and supplier information and business affairs, including any such information or documents related to the Technology Transfer.

“Control” shall mean with respect to any Patents or Know-How, the possession by a Party of the ability to grant a license or sublicense of such Patents, or Know-How as provided for herein without violating the terms of any arrangement or agreements between such Party and any third party.

“Detail” or “Detailing” shall mean, with respect to a Product, the communication by a Sales Representative during a Call to a member of the Target Audience (a) involving face-to-face contact, (b) describing in a fair and balanced manner the approved indicated uses and other

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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relevant characteristics of such Product, (c) using promotional materials in an effort to increase the Target Audience prescribing and/or hospital ordering preferences of a Product for its Governmental Authority approved indicated uses, and (d) made at the Target Audience member’s office, in a hospital, at marketing meetings sponsored by Pfizer Mexico for the Products or other appropriate venues conducive to pharmaceutical product informational communication where the principal objective is to place an emphasis, either primary, secondary or tertiary, on a Product with a member of the Target Audience; provided that, the Parties agree that reminder emphasis during a Detail may be limited to a product sample drop.

“Develop” shall mean, with respect to any Product, all activities relating to seeking, obtaining and/or maintaining Regulatory Approvals, including clinical studies and trials, regulatory affairs, statistical analysis and report writing, market research and development and the preparation, submission, review and development of data related thereto and all other pre-approval activities, but excluding (i) activities relating to synthesis manufacture or otherwise making or having made of any Product, active pharmaceutical ingredient for Product, or any component or formulation thereof (including, without limitation, process development work); or (ii) non-clinical research and drug development activities of the Product.

“Diligent Efforts” means using reasonable efforts, consistent with prudent business judgment, including the carrying out of obligations or tasks consistent with the standard of practice in the pharmaceutical industry for the distribution, marketing, offering for sale and selling, of a pharmaceutical product having similar market potential, profit potential or strategic value as the Product, based on conditions then prevailing, including, without limitation, the maturity of the Product and the intellectual property protection surrounding the Product.

“First Commercial Sale” shall mean, in Mexico, the date of the first arm’s length transaction, transfer or disposition for value to a third party of a Product by or on behalf of Pfizer Mexico or any Subdistributor of Pfizer Mexico.

“FTE” shall mean one full time equivalent Sales Representative calculated based on the number of Details completed by a Sales Representative per twelve month period pursuant to values attributed to such Detail as set forth in the definitions of Primary Detail, Secondary Detail, Tertiary Detail and Reminder Detail, as further delineated in the Detailing and Promotional Plan.

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“Generic Impact” shall mean a greater than ***** percent (*****%) and less than ***** percent (*****%) decrease in Pfizer Mexico’s unit sales of Product in Mexico during the preceding twelve (12) months, in comparison with Pfizer Mexico’s units sales of Product in Mexico during the Pre-Generic Baseline Year.

“Generic Product” shall mean a product which has the same active ingredient (gemifloxacin) as the Product, has the same route of administration and is approved for at least two of the same indications by the relevant Governmental Authority in Mexico.

“Good Clinical Practices” shall mean current good clinical practices and standards as required by applicable U.S. Governmental Authorities for the design, conduct, performance monitoring, auditing, analyses and reporting of clinical trials, including the requirements in 21 C.F.R. Parts 11, 50, 54, 56, 312 and 314, that provide assurance that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected.

“Good Manufacturing Practices” shall mean current good manufacturing practices and standards as required by applicable U.S. Governmental Authorities for the manufacture, testing, packaging and/or distribution of the Product, including the principles set forth in 21 C.F.R. Parts 210 and 211.

“Governmental Authority” shall mean any court, tribunal, arbitrator, agency, legislative body, department, commission, official or other instrumentality of (i) any government of any country, (ii) a federal, state, province, county, city or other political subdivision thereof or (iii) any supranational body.

“Improvements” shall mean any invention made by or on behalf of Pfizer Mexico solely, or jointly with Oscient, in the exercise of its rights under this Agreement during the Term and disclosed in a patent application filed on or behalf of Pfizer Mexico that covers or claims any novel use or formulation or means of administration of Product.

“Know-How” shall mean and include information, materials, data and documents Controlled by Oscient or otherwise known to Oscient under the Head License as of the Effective Date or which becomes Controlled by Oscient during the Term that (a) are related to any patent or patent application included in the Patents, or (b) are necessary for Pfizer Mexico to practice the license granted to it hereunder.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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“Minimum Run Quantities” shall mean the minimum lot size of Product equal to approximately ***** tablets of Product; provided that, the Parties agree that the actual amount of tablets delivered by Oscient may vary due to final yield variations.

“Net Sales” shall mean the gross amount originally invoiced representing all sales of Products for sold by Pfizer Mexico or its Subdistributors to third parties throughout Mexico during each calendar quarter, less the following amounts paid by Pfizer Mexico or its Subdistributors during such calendar quarter with respect to sales of Products regardless of the calendar quarter in which such sales were made:

a) reasonable transportation and insurance charges directly related to the sale of the Product to the third party in Mexico; and

b) sales and other taxes and duties (including value added taxes) directly related to the sale of Product to a third party by Pfizer Mexico;

c) credits or allowances actually given or made for rejection of, and for uncollectible amounts on, or return of previously sold Products; and

d) distributor incentives (i.e., special bonifications) or cash discounts, actually granted, allowed or incurred in the ordinary course of business directly related to the sale of the Product to a third party in Mexico.

In the case of any sale of a Product between or among Pfizer Mexico or Subdistribution for resale (or to any other third party (for resale) on non-arm’s length terms), Net Sales shall be calculated as above only on the first arm’s length sale thereafter by such Subdistributor or other third party. Any of the items set forth above that would otherwise be deducted from the invoice price in the calculation of Net Sales but which are separately charged to, and paid by, third parties shall not be deducted from the invoice price in the calculation of Net Sales. In the case of any sale of a Product or part thereof for value other than in an arm’s length transaction exclusively for cash, such as barter or counter-trade, Net Sales shall be determined by referencing Net Sales at which substantially similar quantities of such Product are sold in an arm’s length transaction for cash.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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“Packaging-Related Manufacturing Costs” shall mean the amount equal to the lower of: (i) Oscient’s *****, or (ii) the packaging related manufacturing cost as set forth in Exhibit “12”; provided that, Oscient’s overhead expenses to be charged to Pfizer Mexico shall be no greater than $***** per tablet.

“Patents” shall mean any of the patents and patent applications described in Exhibit “1” attached hereto, and any divisional, continuation, continuation-in-part, reissue, reexamination, confirmation, revalidation, registration, patent of addition, renewal, extension or substitute thereof, or any patent issuing therefrom or any supplementary protection certificates related thereto.

“Person” shall mean any natural person, entity, corporation, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental Authority.

“Post-Generic Year” shall mean the twelve (12) month period commencing on the first day of the calendar quarter immediately following the first commercial sale in Mexico of a Generic Product by any third party not affiliated with Pfizer Mexico.

“Pre-Generic Baseline Year” shall mean the twelve (12) month period ending as of the end of the calendar quarter immediately preceding the first commercial sale in Mexico of a Generic Product by any third party not affiliated with Pfizer Mexico.

“Price” shall mean the sum of (i) the lower of the ***** or the Maximum Per Tablet Cost, and (ii) all *****.

“Primary Detail” shall mean a Detail in the first mention position, in which the predominant portion of time or emphasis is devoted to Detailing the Product, and shall be equal to four-tenths (.4) FTEs.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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“Product” or “Products” shall mean all oral human pharmaceutical products containing the Compound (commonly distributed under the trademark “Factive”), but specifically excluding any single enantiomer-based product or non-oral formulations.

“Regulatory Samples” means Product samples, Compound samples, reference standard samples, impurity samples, excipient samples and packaging samples.

“Regulatory Authorities” for purposes of this Agreement shall mean Mexico’s Federal Department of Health and any successor thereto, as well as any other government authority or agency, whether federal, state or municipal, having the authority to license, permit or otherwise authorize the importation into Mexico and the Commercialization of the Product in Mexico as well as to issue licenses, permits, registrations, and approvals therefor, including Regulatory Approval.

“Regulatory Documents” means the documents set forth on Schedule I attached hereto to be prepared and submitted by Pfizer Mexico to the Regulatory Authority in order to obtain Marketing Authorizations.

“Reminder Detail” shall mean a Detail in the fourth mention position and shall be equal to (i) one-tenths (.1) FTEs in a four-product Call plan, and (ii) five-one-hundreths (.05) FTEs in a five-product Call plan.

“Sales Representative” shall mean a professional pharmaceutical sales representative engaged or employed by Pfizer Mexico to conduct, among other sales responsibilities, Detailing and other promotional efforts with respect to the Products and who has been trained by Pfizer Mexico.

“Secondary Detail” shall mean a Detail in the second mention position, in which the second-most predominant portion of time or emphasis is devoted to discussing the Product, and shall be equal to three-tenths (.3) FTEs.

“Significant Generic Impact” shall mean a ***** percent (*****%) or greater decrease in Pfizer Mexico’s unit sales of Product in Mexico during the Post-Generic Year, in comparison with Pfizer Mexico’s unit sales of Product in Mexico during the Pre-Generic Baseline Year.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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“Specifications” shall mean the specifications for a Product attached hereto as Exhibit “8”, as such specifications may be amended, supplemented or otherwise modified pursuant to the terms of this Agreement (including pursuant to Section 1(D) herein).

“Target Audience” shall mean, for each Product, the physician specialties with authority to prescribe a pharmaceutical product or issue hospital orders for a pharmaceutical product in Mexico, as identified in the Detailing and Promotional Plan for such Product, in each case as may be amended from time to time by the Steering Committee.

“Tertiary Detail” shall mean a Detail in the third mention position, in which the Product is included in the Detail with lesser prominence than a Secondary Detail but with more prominence then mere inclusion in a product list or sample drop, and shall be equal to two-tenths (.2) FTEs.

“Trademarks” shall mean any of the trademarks described in Exhibit “2” attached hereto.

*****.

SECTION 24. MISCELLANEOUS

A. Governing Law

This Agreement shall be construed, and the respective rights of the Parties determined, according to the substantive laws of the State of New York notwithstanding the provisions governing conflict of laws under such New York law to the contrary, except as otherwise provided in this Agreement or with respect to matters of intellectual property law which shall be determined in accordance with the intellectual property laws relevant to the intellectual property in question. The UNCITRAL Convention for the International Sale of Goods, as well as any other unified law relating to the conclusion and implementation of contracts for the international sale of goods, shall not apply.

B. Entire Agreement

This Agreement represents the entire agreement between the Parties concerning its subject matter. Any and all prior agreements, representations, correspondence, understandings or discussions between the Parties shall have no further force or effect once this Agreement has been signed including that certain Confidentiality Agreement by and between Pfizer Mexico and Oscient dated as of March 15, 2005. This Agreement may be amended or modified only by a written instrument signed by both Parties.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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C. Severability

The invalidity or unenforceability of any particular provision or provisions of this Agreement under any applicable law shall not in any manner or way affect any other provisions hereof and this Agreement shall be construed in all respects as if such invalid or unenforceable provision, if any, were deleted from this Agreement.

D. Relationship

1. The Parties agree that the only relationship between them is that set out in this Agreement and that nothing in this Agreement shall be considered, intended or inferred as creating a joint venture, partnership, agency, employment or other relationship between them.

2. As Pfizer Mexico is a company established within the meaning of Article 13 of the Federal Labor Law, each of the obligations and liabilities that exist or may arise towards the workers or employees contracted by Pfizer Mexico to carry out its obligations under this Agreement shall be exclusively assumed and discharged by Pfizer Mexico. Since there is no contractual relationship between the workers and employees of Pfizer Mexico hired by it to carry out this Agreement, and Oscient, as the same are and shall continue to be, at all times, employees of Pfizer Mexico, the latter shall pay all benefits, fees, taxes, contributions and any other amounts payable to Mexican social security agencies, as well as those payments, including the withholding of income tax, contemplated under the Mexican Income Tax Law and any other amounts payable under currently existing law or that may arise in the future.

E. Assignment

This Agreement may not be assigned by the Parties without the written consent of the other Party or of Oscient; provided, however, that either Party may, without the written consent of the other, assign this Agreement and its rights and delegate its obligations hereunder in connection with the transfer or sale of all or substantially all of such Party’s assets or business, or in the event of its merger, consolidation, change in control or similar transaction. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any purported assignment in violation of this Section 24(E) shall be void. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the Parties.

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F. Headings

The headings used in this Agreement are for reference only and do not describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision thereof.

G. Further Actions

The Parties agree to execute, acknowledge, and deliver such further instruments and documents, and do all such other acts, as may be necessary or appropriate to carry out the purpose and intent of this Agreement.

H. Waiver

The waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy available to them shall not operate or be construed as a continuing waiver of the same or as a waiver of any other right or remedy available to a Party under this Agreement.

I. Limitation of Liability

EXCEPT FOR ANY BREACH OF ANY CONFIDENTIALITY OBLIGATIONS OR LICENSE LIMITATIONS HEREUNDER OR DUE TO A PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OF ITS AFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING LOST PROFITS, BUSINESS OR GOODWILL) SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES IN CONNECTION WITH A BREACH OR ALLEGED BREACH OF THIS AGREEMENT, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE.

J. Notification.

All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, or (ii) sent by private courier

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service providing evidence of receipt; provided, however, that notice to Pfizer Mexico shall be made in a legally unquestionable manner in accordance with Mexican law. The addresses and other contact information for the parties are as follows:

If to Oscient:	Oscient Pharmaceutical Corporation
	1000 Winter Street, Suite 2200
	Waltham, MA 02451
	Attention: Chief Executive Officer
With a copy to:	Oscient Pharmaceutical Corporation
	1000 Winter Street, Suite 2200
	Waltham, MA 02451
	Attention: Legal
If to Pfizer Mexico:	Paseo de los Tamarindos #40,
	Bosques de las Lomas,
	Mexico Distrito Federal, 05120
	Attention: Business Planning Director
With a copy to:	Paseo de los Tamarindos #40,
	Bosques de las Lomas,
	Mexico Distrito Federal, 05120
	Attention: Legal Director

All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if sent by private courier, on the day such notice is delivered to the recipient, or (iii) in the case of Pfizer Mexico, when received as provided above.

K. Language

This Agreement has been prepared in the English language and the English language shall control its interpretation.

L. Limitations.

Except as expressly set forth in this Agreement, neither Party grants to the other Party any right or license to any of its intellectual property.

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M. Construction.

The Parties hereto acknowledge and agree that: (i) each Party hereto and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to the Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

N. Counterparts

This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

O. Third Party Beneficiaries

None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party, including any creditor of either Party. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any debt, liability or obligation (or otherwise) against either Party.

P. Non-Solicitation

Until the ***** year anniversary of the termination or expiration of this Agreement, neither Party shall, and shall cause each of its affiliates not to, directly or indirectly, without the other Party’s prior written consent, solicit the employment of any employee (or former employee bound by a non-competition obligation) of the other Party or its affiliates with whom it has come in contact in conducting activities under this Agreement; provided, however, that the foregoing provisions shall not apply to a general advertisement or solicitation program that is not specifically targeted at such persons.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

[remainder of page intentionally left blank]

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IN WITNESS OF WHICH, Oscient, Pfizer Mexico hereby execute this Agreement as of the 6^th day of February, 2006.

“Oscient”	“Pfizer Mexico”
OSCIENT PHARMACEUTICALS CORPORATION	PFIZER, S. A. DE C.V.
By:	By:
Name:	Name:
Title:	Title:

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EXHIBIT “1”

Patent and Patent Applications

Oscient Docket Number	Application No.	Application Date (Official)	Grant No.	Grant Date	Status
*****	*****	*****	*****	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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EXHIBIT “2”

Trademarks

Trademark	Class	Application No.	Application Date	Registration No.	Registration Date	Status
*****	*****	*****	*****	*****	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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EXHIBIT “3”

Detailing and Promotional Plan

The field force allocation for Product shall be *****.

The targeting strategy shall include *****.

		Month 1 to 12	Month 13 to 24	Month 25 to 36
Field Force Allocation	Field Forces full year	*****	*****	*****
	Field Forces during season	*****	*****	*****
	Number of representatives	*****	*****	*****
	Number of calls	*****	*****	*****
	FTEs*	*****	*****	*****

* Number which is referred to triggering Oscient’s termination right under Section 19(D) of the Agreement.

FTE CONVERSION METHODOLOGY

	1st Position Calls	1st Position FTEs	2nd Position Calls	2nd Position FTEs	3rd Position Calls	3rd Position FTEs	Total Calls	Total FTEs
*****	*****	*****	*****	*****	*****	*****	*****	*****
Total	*****	*****	*****	*****	*****	*****	*****	*****

For purposes of clarity, total FTEs will be calculated according to the following methodology:

*****

Illustrative Example:

*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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EXHIBIT “4”

Additional Milestone Indications Categories

*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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EXHIBIT “5”

Oscient Docket Number	Application No.	Application Date (Official)	Grant No.	Grant Date	Status
*****	*****	*****	*****	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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EXHIBIT “6”

Power of Attorney

“RESOLVED, to grant to                         ,                         , and                          an irrevocable special power of attorney (this being a condition of a bilateral contract made between Oscient Pharmaceuticals Corporation, a Massachusetts, United States company, and the Company, and dated                     , 2006), as broad as may be required by law, to be exercised jointly or individually, so that said attorneys-in-fact may carry out all transactions with the Federal Department of Health and its agencies, including the Federal Commission for Protection Against Health Risks, including those necessary or related to obtaining, maintaining, accessing, assigning, and/or canceling health registrations in the name of Pfizer México, S.A. de C.V. with respect to oral human pharmaceutical products containing the form of gemifloxacin mesylate having the molecular formula ***** (commonly distributed under the trademark “Factive”), but specifically excluding any single enantiomer-based product or non-oral formulations.

The power granted to the attorneys-in-fact includes, but is not limited to, the authority to execute any kind of public or private documents necessary or suitable for exercising the power of attorney granted herein.

Subject to the specific purpose of this power of attorney, the attorneys-in-fact will have general authority for acts of administration and for litigation and collections, (to be exercised jointly or individually), pursuant to Articles 2554 and 2596 of the Federal Civil Code and the Civil Code for the Federal District, and its correlatives of the Civil Codes of the States of the Republic of Mexico, with all of the general and special faculties that in accordance with the law may require a special clause pursuant to Article 2587 of said Civil Code and its correlatives of the Civil Codes of the other States of the Republic, such as to withdraw proceedings, enter into settlements, compromise in arbitration, submit and answer interrogatories, take exceptions to judges, accept assignments of property, receive payments, execute receipts and cancellations, exercise the civil, mercantile and criminal causes of action in representation of the company as also to answer complaints and continue proceedings, throughout all phases thereof until their termination; initiate, process and withdraw constitutional proceedings, on the understanding that

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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said attorney (s) in fact may exercise the power of attorney before Conciliation and Arbitration Boards, whether local or federal, before arbitral tribunals, fiscal authorities and tribunals and before any other type of authority; execute collective or individual employment contracts; make all types of denunciations, accusations and criminal complaints of any kind; to represent the company in any criminal proceeding; to become (a) coadjutor (s) of the Public Prosecutor; condone the accused party, if he (they) deem (s) it expedient, submit evidence in proceedings pursuant to Article Ninth of the Code of Criminal Procedures, and the corresponding Articles of the referred Code of the other States of the Republic and for such purpose the attorney (s) in fact shall have all the general and special faculties that in accordance with the Codes of Criminal Procedures of the States of the Republic, may require a special clause to file denunciations and/or criminal complaints, on the understanding that the above faculties are set forth by way of illustration and not by way of limitation for the exercise of the power of attorney.”

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EXHIBIT “7”

Assignment

ASSIGNMENT OF HEALTH REGISTRATIONS ENTERED INTO BY AND BETWEEN PFIZER MEXICO, S.A. DE C.V. (HEREINAFTER THE “ASSIGNOR”), HEREIN REPRESENTED BY ITS ATTORNEY-IN-FACT, MR.                                         , AND BY OSCIENT PHARMACEUTICALS (HEREINAFTER THE “ASSIGNEE”), HEREIN REPRESENTED BY ITS ATTORNEY-IN-FACT, MR.                                         , PURSUANT TO THE FOLLOWING REPRESENTATIONS AND SECTIONS:

REPRESENTATIONS:

I. Assignor hereby represents:

1.1 That it is a corporation duly organized and validly existing under the General Corporation Law, as set out in public instrument number 19,021, dated April 12, 1951, certified by Roberto Landa Guth, Notary Public 22 for the Federal District, Mexico, and duly registered in the Public Registry of Commerce of the Federal District, under number 831, on page 375, volume 271, third book on June 26, 1951.

1.2 That it is engaged, among other things, in conducting clinical development and activities related to obtaining and/or maintaining regulatory approval in Mexico for pharmaceutical products and in marketing and commercializing such products in Mexico.

1.3 That it is recorded with the Federal Taxpayers’ Registry under number PFI-730206-632

1.4 That its legal representative has power and full capacity to bind it pursuant to the terms and conditions contained in this Agreement, said faculties have not been revoked nor limited in any manner, as evidenced in public instrument number                     , dated                     , 19    , certified by Mr.                                         , Notary Public No.         , for                     , and recorded with the Public Registry of Commerce of the Federal District under                                         , dated                     , 19    .

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1.5. That it is titleholder of the following health registrations (hereinafter the “Registrations”) granted by the Federal Commission for Protection Against Health Risks (COFEPRIS), which are currently valid and duly recorded as described beneath. Copies of the authorizations described herein are attached to this Assignment as Exhibit “A”.

Authorization number Commercial name of the Product Common name of the active ingredient and its concentration

1.6. That the Registrations are in full force and are assignable and the granting of this Assignment does not contravene any law or regulation.

1.7. That the Registrations are free of any liens, encumbrances or limitations and are not and have not been subject to expiry proceedings, revocation or cancellation.

1.8. That it wishes to enter into this Assignment to assign to the Assignee the Registrations.

II. Assignee hereby represents:

2.1. That it is a corporation duly organized and validly existing under the laws of Commonwealth of Massachusetts, United States of America, and has all the requisite corporate power on its business as now being conducted.

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2.2. That the person signing this Agreement on its behalf has been duly authorized to do so in accordance with all the corporate and legal requirements applicable to it, which authority has not been revoked or limited in any way.

2.3. That it wishes to enter into this Agreement in order to acquire the Registry.

In view of the foregoing, the parties agree as to the following:

SECTIONS:

FIRST. PURPOSE.- The Assignor hereby assigns to the Assignee, and the Assignee accepts, the Registrations granted by COFEPRIS as described in Exhibit “A” of this Agreement.

SECOND. TRANSMISSION OF THE TITLE.- The assignment of the Registrations includes all rights in connection with the Registrations and the Assignee shall hereafter be the only owner and holder of the Registrations and may use or dispose of the same in any manner it may consider appropriate, without claim or hindrance from the Assignor for any reason or at any time. The Assignor shall use all reasonable efforts to assist the Assignee, at Assignee expense, in obtaining the registration of this Assignment with COFEPRIS and its authorization for the transmission of title of the Registrations from the Assignor to the Assignee.

As a consequence of the assignment contained herein, the Assignee assumes the responsibility of the use of Registrations and of compliance with all applicable laws and regulations.

THIRD. REGISTRY AUTHORIZATION.- The parties authorize Messrs.                                          to jointly or separately record this Assignment with COFEPRIS.

FOURTH. NOTICES AND DOMICILES.- All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving party’s

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address set forth below or to such other address as a party may designate by notice hereunder, and shall be delivered, in the case of the Assignor, in a legally unquestionable manner in accordance with Mexican law, and in the case of the Assignee either (i) delivered by hand, or (ii) sent by private courier service providing evidence of receipt. The Parties designate as their respective domiciles the following:

For the Assignor:

Address:

Telephone:

Fax:

Attention:

For the Assignee:

Address:

Telephone:

Attention:

Any party may change its address for notice by providing prior written notice of the same to the other party. Otherwise, any notice given to party who fails to provide said notice will be considered valid, in case the same is given in the last registered domicile of the failing part, in terms of this section. Notices that are delivered by personal service shall be deemed to have been received when delivered to the address set forth in this Section.

FIFTH. JURISDICTION.- For the interpretation and compliance of this Agreement, the parties submit to the laws in force in and to the common courts of the Mexico Cit, Federal District, Mexico, hereby waiving any other jurisdiction that may correspond to them by reason of their present or future domiciles or otherwise.

IN WITNESSETH, the parties have caused this Agreement in duplicate to be executed by their duly authorized representatives in Mexico City and                      on                     .

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ASSIGNOR		ASSIGNEE
PFIZER, S.A. DE C.V.		OSCIENT PHARMACEUTICALS CORPORATION
By:		By:
	Mr.		Mr.

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EXHIBIT “8”

LETTER OF AUTHORIZATION

[OSCIENT LETTER HEAD]

LETTER OF AUTHORIZATION

For use in the United Mexican States (“Mexico”)

Re: FACTIVE® (gemifloxacin mesylate) Tablets

To Whom It May Concern:

Oscient Pharmaceuticals Corporation, a corporation organized and existing under the laws of the Commonwealth of Massachusetts, United States of America and having a principal place of business at 1000 Winter Street, Suite 2200, Waltham, MA 02451, acquired from LG Life Sciences LTD the exclusive license to develop and commercialize in Mexico, human oral formulations of any compound containing the active ingredient gemifloxacin as well as the right to continue developing the same.

On February 6, 2006, Oscient Pharmaceuticals Corporation executed an exclusive sub-license whereby Oscient Pharmaceuticals Corporation granted to Pfizer, S.A. de C.V. the exclusive right to register, import, package and commercialize FACTIVE® Tablets in Mexico. Therefore, Oscient Pharmaceuticals Corporation hereby authorizes Pfizer, S.A. de C.V., located at Carretera Mexico Toluca Km.63, colonia Zona Industrial Toluca, C.P. 50140, Toluca Estado de Mexico, to be responsible to register, import, package and commercialize FACTIVE® Tablets, for use in Mexico.

FACTIVE® Tablets is manufactured by Patheon Pharmaceuticals, Inc., 2110 East Gailbraith Road, Cincinnati, Ohio, United States of America, for use in Mexico. Patheon Pharmaceuticals, Inc. was contracted by Oscient Pharmaceuticals Corporation to manufacture FACTIVE® Tablets for use in Mexico pursuant to a certain Manufacturing Services Agreement executed by and between Oscient Pharmaceuticals Corporation and Patheon Pharmaceuticals, Inc. on January 20, 2005.

[TO BE EXECUTED BY A LEGAL

REPRESENTATIVE OF OSCIENT]

[TO BE NOTARIZED AND APOSTILLE BY OSCIENT]

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EXHIBIT “9”

SPECIFICATIONS

Vendor Name and Address: *****	Vendor Part Number: ***** Vendor Specification Number: ***** Vendor Part Number: ***** Vendor Specification Number: *****
Storage Conditions: *****	Expiration Period: ***** Months

Test	Specification	Method
Description	*****	*****
Identification – HPLC	*****	*****
Identification – Infrared Spectroscopy	*****	*****
Gemifloxacin Content	*****	*****
Dissolution	*****	*****
Uniformity of Dosage Unit by Weight Variation	*****	*****
Moisture Content	*****	*****
Degradation Products Any Unspecified Impurities Total Related Substances	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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EXHIBIT “10”

Post-Marketing Pharmacovigilance Adverse Event Policy

Version 1.0

06 February 2006

1. Introduction

Oscient Pharmaceuticals Corporation (“Oscient”) and Pfizer, S.A. de C.V. (“Pfizer”) have entered a Sublicensing and Distribution Agreement dated February 6, 2006 for FACTIVE® (gemifloxacin mesylate) tablets (the “Product”) manufactured and marketed in the United States by Oscient (the “Business Agreement”). Pfizer will be the Marketing Authorization Holder (MAH) for the Product in the territory of Mexico. This Post-marketing Pharmacovigilance Joint Operating Agreement (JOA) serves to define the Pharmacovigilance responsibilities of Oscient and Pfizer with respect to the Product pursuant to the Business Agreement. This JOA is applicable only for finished Product manufactured by Oscient or its designee and supplied to Pfizer. The manufacture of the finished Product by Pfizer, or its designee using the Active Pharmaceutical Ingredient (API) will require a revision of this JOA.

2. Definitions

Adverse Event (AE): An AE is any untoward medical occurrence in a patient administered a pharmaceutical product and that does not necessarily have a causal relationship with this treatment. An AE can, therefore, be any unfavorable and unintended sign (including an abnormal laboratory finding), symptom, or disease temporally associated with the use of a medicinal product, whether or not related to the medicinal product.

This includes the following: an AE occurring in the course of the use of a drug product in professional practice; an AE occurring from drug overdose whether accidental or intentional; an AE occurring from drug abuse; an AE occurring from drug withdrawal; and any failure of expected pharmacological action.

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Serious Adverse Event (SAE): An AE occurring at any dose that results in any of the following outcomes:

• Death

• Life Threatening

• Inpatient hospitalization or prolongation of existing hospitalization

• A Persistent or Significant Disability/Incapacity

• A Congenital Anomaly/Birth Defect

• Important medical events that may not result in death, be life-threatening or require hospitalization may be considered a serious adverse event when, based upon appropriate medical judgment, may jeopardize the patient or subject and may require medical or surgical intervention to prevent one of the outcomes listed above.

Life-Threatening Adverse Event: Any adverse event that places the patient, in the view of the initial reporter, at immediate risk of death from the adverse event as it occurred. It does not include an AE that, had it occurred in a more severe form, might have caused death.

Disability: A substantial disruption of a person’s ability to conduct normal life functions.

Important Medical Event: Examples of such medical events include allergic bronchospasm requiring intensive treatment in an emergency room or at home, blood dyscrasias or convulsions that do not result in inpatient hospitalization, or the development of drug dependency or drug abuse.

With respect to results obtained from tests in laboratory animals, an SAE includes any event suggesting a significant risk for human subjects, including any findings of mutagenicity, teratogenicity or carcinogenicity.

Labeled Adverse Event(s): Any adverse event that is noted in the current approved labeling for the drug product as a possible complication of drug use.

Unlabeled Adverse Event(s): Any adverse event that is not noted in the current labeling for the drug product. This includes events that may be symptomatically and pathophysiologically related to an event labeled in the product labeling, but differ from the event because of greater severity or specificity. “Unlabeled,” as used in this definition, refers to an AE that has not been previously observed (i.e., included in the labeling) rather than from the perspective of such an event not being anticipated from the pharmacological properties of the pharmaceutical product.

• Examples under this definition include hepatic necrosis which would be unlabeled (by virtue of greater severity) if the labeling only referred to elevated hepatic enzyme or hepatitis; cerebral thromboembolism and cerebral vasculitis (by virtue of greater severity) if the labeling only listed cerebral vascular accidents.

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3. Post-marketing Adverse Events

3.1 Receipt of Adverse Events

Pfizer will provide a service for the receipt and intake of all reported adverse events (AE) in Mexico whether by telephone, fax or written correspondence. The date that Pfizer (or its agent) first becomes aware of the AE information regarding the Product is considered the “Awareness Date” and will be considered Day 0 for safety data communication and regulatory reporting purposes. Pfizer will translate all AE information into English and will forward the report and copies of all source documents to Oscient within one (1) business day from the Awareness Date for all SAEs and within three (3) business days for all Non-Serious AEs. Pfizer will also forward any reports of Exposure in Utero, suspected overdose, misuse or abuse with the use of the Product, regardless of whether associated or not with an adverse event, within one (1) business day of the Awareness Date and will be processed as adverse events.

Oscient may, if desired, prepare standard questions to be asked by the respective Pfizer personnel responsible for the intake of safety information. These standard questions may be updated by Oscient as necessary.

3.2 Processing of Adverse Events

Oscient will maintain the global safety database. Pfizer will provide a case number for each report for tracking purposes, but will not enter reports into a safety database.

All AE reports and source documents forwarded by Pfizer to Oscient will be processed by Oscient personnel and entered into Oscient’s global safety database. Oscient will be responsible for generating all Individual Case Safety Report (ICSR) for cases received from Pfizer. Oscient will provide Pfizer with a completed CIOMS report within 10 days from the Awareness Date. Pfizer will translate the Oscient ICSR, as written, into the appropriate language for purposes of submitting to the Mexican Federal Department of Health.

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3.3 Assessment of Seriousness

The determination of Seriousness for each event/case will be performed by Oscient.

3.4 Assessment of Labeledness

The determination of labeledness for each AE will be performed by Oscient based on the Pfizer Package Insert for cases originating in Mexico.

3.5 Coding of Adverse Events

All AE reports originating from Mexico will be coded, using the MedDRA dictionary, by Oscient according to Oscient AE coding conventions and SOPs.

3.6 Regulatory Reporting of Expedited Adverse Events

Pfizer will determine the reportability for reporting in Mexico for each case according to Pfizer SOPs. Pfizer will be responsible for submitting all Expedited events to Mexico’s Federal Department of Health. Pfizer will forward a copy of the submitted file to Oscient as soon as it has been reported to the local Regulatory Authorities

3.7 Due Diligence (Request for Follow-up Information)

Pfizer will perform all due diligence (i.e., requests for follow-up information) on all AEs originating from Mexico. Due diligence can be performed by telephone, facsimile, e-mail or by mailing the AE Reporter. AE events evaluated as being non-serious will require at least one (1) due diligence attempt. AE reports evaluated as being Serious will require at least three (3) due diligence attempts. Additional due diligence attempts will be performed, if requested by either party, in a timely fashion.

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Oscient may, if desired, prepare questions to be asked Pfizer personnel responsible for performing due diligence. These questions may be in the form of an AE Form to be completed by the reporter or individual questions requiring a response. Oscient must provide Pfizer with questions, or communication that further questions are not necessary, within five (r) days from each party’s receipt of the event(s) and at additional times as deemed necessary. Due diligence communication to the reporter will not be performed until Oscient has determined whether questions are necessary.

Pfizer will forward copies of original due diligence requests to Oscient, as well as an English translated version, at the time the due diligence request is communicated to the reporter.

3.8 Follow-up Information Adverse Event Information

All follow-up information received on AE reports will undergo the same process described above in Sections 2.1 through 2.4.

3.9 Literature Adverse Events

Pfizer will perform all local literature searches and will forward, to Oscient, a translated English copy of all articles determined to contain safety information as assessed by Pfizer safety personnel. All articles with the reporting of SAEs will be communicated to Oscient within one (1) working day with a translated copy sent to Oscient in a timely fashion, but not greater than ten (10) days.

3.10 Reconciliation Procedures

Oscient will provide to Pfizer, on a daily basis, a Daily Reconciliation Form (DRF) for the purposes of assuring successful transmission of all reports to Oscient. The DRF will list all Pfizer reports received by Oscient on the date specified. This DRF will be reviewed by

83

Pfizer for accuracy and completeness, initialed and sent back to Oscient the same day. Any discrepancies will be rectified by both parties in a timely manner.

Oscient will provide to Pfizer, on a weekly basis, a listing (from Oscient’s safety database) of all reports originating from Mexico for the purposes of assuring that Pfizer has all necessary reports. Any discrepancies will be rectified by both parties in a timely manner.

4. Periodic Safety Update Reports

Oscient will provide Pfizer, when requested, copies of Periodic Safety Update Reports (PSUR) that Oscient has submitted to the FDA. For biannual PSUR reporting to the Mexican Federal Department of Health, Oscient will provide Pfizer with a copy of two (2) quarterly PSUR reports as equivalents. Oscient will not aggregate safety data to create a six-month report.

5. Regulatory Authority Inquiries

All safety inquiries from the Mexican Federal Department of Health will be prepared by Pfizer and reviewed by Oscient prior to submission. Final approval of the responses to the Mexican Federal Department of Health will be the responsibility of Pfizer. All inquiries from the FDA will be prepared by Oscient and reviewed by Pfizer prior to submission. Final approval of responses to the FDA will be the responsibility of Oscient.

6. Company Core Safety Information

A Company Core Safety Information (CCSI) document, if needed, will be maintained and provided to Pfizer by Oscient. Oscient and Pfizer may request changes to the CCSI, but the final decision and approval of any changes will be determined solely by Oscient.

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7. Product Label

Oscient will maintain the Product Label for the Product in the U.S. and Pfizer will maintain the Product Label for the Product in Mexico. If any change(s) to the safety language in either the U.S. or Mexican Product Label is considered, both parties will work collaboratively to determine if any change(s) is necessary and, if so, what the change(s) should include. In any event, Oscient will have the final approval as to whether any change(s) is necessary and what the changes will be for both the U.S. and Mexican Product Labels.

85

EXHIBIT “11”

Form of Purchase Order

Description: Sample of Purchase Order Form 86-1

SPECIAL INSTRUCTIONS

1. Pfizer Inc carries transportation insurance. No additional insurance is required and will not be paid.

2. Pfizer Inc purchase order no must appear on all package, B/L’s & correspondence, invoices, etc.

3. Notification of acceptance of this order along with a copy of this purchase order must be returned by fax (+52 722 2797100 ext 2193) or by mail (martin.gonzalez@pfizer.com).

4. A final product shipper must include Pfizer P.O. # and full company name and address from where the product is been shipped.

5. Please include in the invoice:

• Full company name and address

• Taxpayer identification (as required by the Tax Equity and Fiscal Responsibility Act of 1982).

6. Documents needed in each shipment. An invoice Certificate of Analysis, Certificate of Origin and Packing list Airway bill.

7. Shipment terms shall be EXW (as such term is defined in INCOTERMS 2000) Oscient Pharmaceuticals Corporation, through it designee, Patheon Pharmaceuticals Inc., 2110 East Gailbraith Road, Cincinnati, Ohio, 45215.

8. Risk of loss or of damage to Products shall remain with Oscient Pharmaceuticals Corporation for shipment at the shipping point at which time risk of loss or damage shall transfer to Pfizer Mexico.

9. Oscient Pharmaceuticals Corporation shall, in accordance with Pfizer Mexico’s instructions and as agent for Pfizer Mexico (i) arrange for shipping to be paid by Pfizer Mexico and (ii) at Pfizer Mexico’s risk and expense, obtain any export license or other official authorization necessary to export the Products.

10. Pfizer Mexico shall arrange for insurance with respect to all shipping of Product. Oscient Pharmaceuticals Corporation will schedule freight pick up, load the carrier’s trailer and complete documentation all in accordance with Pfizer Mexico’s reasonable requirements.

STANDARD TERMS AND CONDITIONS

1. CANCELLATION: If delivery is not made pursuant to the terms hereof and/or in accordance with Buyer’s specifications Buyer has the right to cancel this order or any portion thereof.

2. PRICE: If no price is stated herein, the articles work, or services shall be billed at the price last quoted by Seller, or last paid by Buyer to Seller, or at the prevailing market price whichever is lowest.

3. WARRANTIES: Seller represents and warrants that:

a) All articles supplied hereunder are free from defects in material and workmanship and are of merchantable quality, conform to the Buyer’s specifications and are suitable for Buyer’s intended uses and purposes to the extent that such uses and purposes are known or reasonably should be know to Seller;

b) No article supplied hereunder is adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act as amended, or is an article which may not under the provisions of Sec 404 or 505 of the Act be introduced into interstate commerce; no article supplied hereunder is produced in violation of the Fair Labor Standards Act, as amended, and both of the above statements shall appear on Seller’s invoices; all articles supplied hereunder, which are so required, will be lawfully registered with the US Department of Agriculture at the time of sale and delivery and will comply with the other requirements of Sect 135, 135k of Title 7 of the US Code; and that all articles work and services supplied hereunder are furnished in full compliance with the Federal Hazardous Substance Labeling Act, where applicable as well as with all other applicable Federal State and Local laws;

c) The use or sale of the articles delivered hereunder will not infringe any United States patent but Seller does not warrant against infringement by reason of the use thereof in combination with other materials or in the operation of any process;

d) All work and/or services supplied hereunder will be performed properly, in a workmanlike manner and in accordance with the Buyer’s specifications;

e) No chemical substance supplied hereunder was manufactured, processed, or distributed in commerce in violation of Section 5 or 6 of the Toxic Substance Control Act or rule or order issued thereunder, or an order issued in an action brought under Section 5 or 7 of the Act.

4. REVISION: This purchase order expressly limits acceptance of the terms set forth herein. No terms stated by Seller in accepting or acknowledging this order shall be binding upon Buyer if inconsistent with or in addition to the terms stated herein unless accepted in writing by Buyer. If, however, a written contract is already in existence between Buyer and Seller covering the purchase of the articles, work or services covered hereby the terms and conditions of said contract shall prevail to the extent that the same may be inconsistent with the terms and conditions hereof.

5. INSURANCE: When performing any work or services at any of Buyer’s locations Seller is to carry adequate insurance and will promptly furnish Buyer with a certificate thereof covering Workmen’s Compensation and Occupational Disease; General Bodily and Property Damage Liability; and Automobile Bodily and Property Damage Liability.

6. INSPECTION: All articles supplied hereunder are to be shipped subject to Buyer’s examination and right of rejection for a reasonable time after delivery notwithstanding prior payment, if not as warranted herein or if not in conformity with Buyer’s specifications or if no specifications are given by Buyer, with standard specifications. All expenses incurred by Buyer as a result of rejections hereunder shall be for Seller’s account, and Buyer may return rejected articles at Seller’s expense.

7. TAXES: The purchase price herein set out is inclusive of any and all taxes and other governmental charges, now imposed or hereafter becoming effective upon the production sale shipment, use or erection of the materials specified in this order; and Seller agrees to indemnify Buyer against and reimburse it for any expenditures it may be required to make on account of Seller’s failure to pay such taxes and other governmental charges.

8. CONTINGENCIES: Failure of Seller to make or of Buyer to take one or more deliveries of articles or performance of work or services hereunder, if occasioned by acts of God, fire, explosion, flood, epidemic, strike, labor dispute, war, acts of governmental authority, civil disturbances, breakage or accident to machinery or any other circumstances where similar or dissimilar to those enumerated, beyond the control of the parties, or if Buyer’s failure is occasioned by a partial or complete suspension of operation at any of the Buyer’s plants shall not subject the party so failing to any liability to the other party but at Buyer’s option the total quantity of articles, work or service covered by this order may be reduced by the extent of delivery or performance omitted and as a result of such contingencies or the specified delivery or performance period may be extended by the period during which such delivery or performance is omitted and such delivery or performance made during such extension.

9. PACKING AND SHIPPING: All articles shall be suitably packed or otherwise prepared for shipment, so as to secure the lowest transportation rates and to meet carrier’s requirements. No charges will be allowed for packing, crating or cartage unless stated in this order. Each container must be marked to show quantity order number contents and shipper’s name. A packing sheet showing this information shall be included in each package. Seller shall prepay all shipping charges unless otherwise specified.

10. APPLICABLE LAW: The Laws of the State of New York shall govern in all cases where the transactions hereunder bear a reasonable relation to the State of New York.

11. SAFETY: In all cases where Seller delivers goods or performs work or services hereunder at any of Buyer’s locations Seller will comply with all applicable provisions of Federal State and Local safety laws and rules and shall take all necessary precautions for safe performance. Buyer reserves the right to require the Seller to abide by Buyer’s safety standards on Buyer’s premises.

12. The Seven Point Equal Employment Opportunity clause set forth in Exec Order 11246 the Affirmative Action for Handicapped Workers clause found in 41 CFR 60-741 4 and the Affirmative Action for Disabled and Viet-Nam Veterans clause found in CFR 60-250 4 are made part of this order to the extent required by applicable law including the requirements set out in 41 CFR 61250 10.

13. All work and materials supplied hereunder must comply with the applicable requirements of the Occupational Safety and Health Act of 1970.

14. INDEMNIFICATION: Seller agrees to defend, indemnify and hold harmless the Buyer against any and all liability judgments, damages, losses and expenses occasioned by or resulting from any breach of warranty or by the failure of the Seller to comply with the terms hereof regardless of whether or not such failure is caused in part by the Buyer.

15. DRAWING PRINTS AND SPECIFICATIONS: Seller agrees that it will not use, sell, loan or publicize any of the tools, specifications, blueprints or designs supplied or paid for by Buyer for the fulfillment of this order without Buyer’s written consent.

16. TOOLS, DIES AND MOLDS, ETC: All tools, dies, molds, printing plates, etc. created for use on this order shall be property of Buyer and buyer may withdraw them from Seller’s premises on demand in writing. They shall be carefully preserved by Seller and maintained in good operating condition at all times.

17. ASSIGNABILITY: This order in its entirety and each and every provision hereof shall inure to the benefit of the customers, successors and assigns of Buyer. Seller may not assign this order without Buyer’s written consent.

18. INTERNATIONAL SHIPMENTS: Packaging, marking, labeling and shipping papers for international shipment of all hazardous materials must meet applicable Department of Transportation (DOT), Intergovernmental Maritime Consultive Organization (IMCO), and/or International Civil Aeronautics Organization (ICAO) regulations.

19. THIRD PARTY RIGHTS: The provisions of this order are inserted for the sole benefit of the Seller and Buyer and shall not inure to the benefit of any other person (other than permitted assigns) either as a third party beneficiary or otherwise.

86

EXHIBIT “12”

Packaging-Related Manufacturing Costs

One Time Project Initiation Costs

Scope	Cost
Project Costs •     Project coordination •     LPR and specification development •     Copy review for blister foil •     Print cylinders for new foils – 1 color, 1 side only	$*****
Testing Costs – Lab Qualification •     Standard release testing for 3 lots of Factive tablets •     Review and approval of Pfizer written protocol	$*****
Variable Costs per Lot
	Cost
Sample 1s	$***** per tablet
Trade 5s	$***** per tablet
Oscient Overhead	$***** per tablet
Lot Changeover Costs*	$***** per lot

* Includes line clearance, changeover and setup of the line for different packaging SKU

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

87

SCHEDULE I

Regulatory Documents

Factive® Tablets United States (U.S.) New Drug Application (NDA) 21-158

• August 2004, FACTIVE® U.S. Prescribing Information

15-Dec-1999 Original Submission

• _Item 3.E.2: Toxicology Summary, vol. 1.3.001, pp. 182-308

• _ Item 3.E.3: ADME Summary, vol. 1.3.001, pp. 309-433

• _ Item 3.F: Human PK/Bio Summary, vol. 1.3.002, pp. 434-451

• _ Item 3.G: Microbiology Summary, vol. 1.3.002, pp. 452-725

• _ Item 3.H: Clinical Summary, vol. 1.3.003, pp. 726-830, 844-901 [without 10-day cUTI/Pyelonephritis info]

• Item 4.A.2.9, Development Pharmaceutics

• _ Section 1.1: Clinical formulae, vol. 1.4.002, pp. 4-6

• _ Section 4: Rationale for Packaging, vol. 1.4.002, p. 25

• _ Section 5: Justification of Specifications, vol. 1.4.002, pp. 25-26

04-Oct-2002 Resubmission

• _ Item 3.E: Preclinical Summary, vol. 1.1.001, pp. 76-88

• _ Item 3.F: Human PK/Bio Summary, vol. 1.1.001, pp. 89-101

• _ Item 3.G: Microbiology Summary, vol. 1.1.001, pp. 102-147

• _ Item 3.H: Clinical Summary, vol. 1.1.001, pp. 148-223

14-Oct-2002 AECB Amendment to Resubmission

• _ Item 3.H: Clinical Summary, vol. 1.1.001, pp. 1-41

15-Apr-2005 Supplement: Changes being effected—30 days

• _ Item 4.A.2.3.2: Drug Substance (DS), pp. 14-15 [Patheon info]

• _ Item 4.A.2.5.2: Manufacturing Process, pp. 18-22 [Patheon info]

• _ Item 4.A.2.5.4: In Process Controls, pp. 23-25 [Patheon info]

• _Item 4.A.2.7.2: Drug Product (DP) Specifications, pp. 29-30 [Patheon info]

• _ Item 4.A.2.8.3: DP Stability Protocol/Specifications, pp. 34-36 [Patheon info]

• _Appendix A1: Patheon DS specifications, pp. 43-44

• _ Appendices A2-A6: Patheon DS methods, pp. 45-69

• _ Appendix D: Patheon packaging specifications, pp. 399-405

• _Appendix E1: Patheon DP specifications, pp. 409-415

• _ Appendices E2-E5: Patheon DP non-compendial methods, pp. 416-436

• _Appendix F: Patheon DP Certificates of Analysis (CofAs), pp. 438-440

• _Appendix H1: Patheon DP Stability Data, pp. 449-454

88

18-Nov-2005 Efficacy Supplement: 5-day CAP and 5-day ABS indications

• _ Proposed FACTIVE® U.S. Prescribing Information

• _ Item 8.G.2: 5-day CAP Integrated Summary of Efficacy, vol. 43, pp. 9-70

• _ Item 8.G.3: 5-day ABS Integrated Summary of Efficacy, vol. 43, pp. 222-303

• _ Item 8.H.1: 5-day CAP Integrated Summary of Safety, vol. 44, pp. 1-213

• _ Item 8.H.2: 5-day ABS Integrated Summary of Safety, vol. 49, pp. 1-154

Factive® Tablets Canada New Drug Submission (NDS), Control No. 064521

15-Dec-1999 Original Submission

• _ Part 2: Chemistry and Manufacturing, Certified Product Information Document (CPID), vol. 2, pp. 5, 18, 24, 27-30

• _Part 2: Chemistry and Manufacturing, New Drug Master File – Open Part

• Section 1.1, Names, vol. 3, pp. 31-32

• Section 1.2, Structural Formula and Molecular Weight, vol. 3, p. 32

• Section 1.3, Physical and Chemical Characterization, vol. 3, pp. 32-76

• Section 1.4, Elucidation of Structure, vol. 3, pp. 76-103

• _ Section 3.9, Container Closure System, vol. 3, p. 115

• _ Section 7.6, Stability discussion: brief summary of qualification batches, photostability studies and supporting stability studies, vol. 3, pp. 232-233

• _ Section 8, Development Chemistry, vol. 3, pp. 234-278

• _ Appendix 3, TLC Method, vol. 5, pp. 69-73

Factive® Drug Substance, US Drug Master File (DMF) 14524

2002-Feb-22 Annual Update

• _ Section 7.4.7.1, Supporting Stability Studies, 36-month data, pp. 303-329

2004-Jun-01 Annual Update

• _ Section 7.3, Stability protocol for Iksan commercial batches and routine commercial batches, pp. 61-62

2005-Jun-29 Annual Update

• _ Section 6.3, Batch Analysis Data, pp. 67-71

• _ Section 6.4, Impurity Summary, pp. 72-3

• _ Section 7, Stability Summary and Updated Iksan and Routine Commercial Batches, pp. 74-84

• _ Appendix 4: Updated EF01, EF02, and EF03 Master Batch Records, pp. 104-292

Oscient Pharmaceuticals, Factive® Quality Assurance (QA) Files

• _Name and address of LG Life Sciences API Manufacturing Facility

• _Factive®, FDA US Certificate of Pharmaceutical Product (CPP), issued 20-Jan-2006

89

• _ MBR-003: Patheon Line Packaging Master Batch Record

• _ RPT-016 and RPT-189: Drug Product Methods Transfer Reports, GSK ® Patheon

• _ RPT-027: Patheon Manufacturing Process Validation Report

• _ RPT-030: Drug Substance Methods Transfer Report, GSK ® Patheon

• _RPT-180: 2000 GSK Factive Development Report

• _ Formulation

• _ Physical and Chemical Characterization

• _Factive DP additive specifications

• *****

• _Patheon, first pages of DP batch records

• _ 3041945R

• _ 3041946R

• _ 3041947R

• _LG Life Sciences, Certificates of Analysis (CofAs) of three API lots

• QUB 04004

• QUB 04005

• QUB 04006

• _Patheon, CofAs of three API lots

• QUB 04004

• QUB 04005

• QUB 04006

• _Additive Manufacturers, CofAs of Additives

• *****

• _Patheon, CofAs of Additives

• *****

• _Patheon, Tests to Evaluate Container-Closure System and Packaging Materials

• _Packaging Manufacturers, CofAs of Packaging Materials

• _Patheon, Analytical data (spectrums, chromatograms, etc.) from three DP lots

• 3041945R

• 3041946R

• 3041947R

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

90

SCHEDULE II

Actual Packaging-Related Manufacturing Costs Catagories

One Time Pass-Through Costs

• Project Start-up Costs

• Lab Qualification Testing Costs

• Foil Lidding

Per Lot Pass-Through Costs

• Packaging components

—PVC/PVDC

—Foil Lidding

• Raw materials and ingredients (including labels, product inserts, and other labeling for the Products)

• Manufacturing overhead

• Oscient overhead reasonably allocable to regulatory compliance activities, quality assurance and quality control, supply chain management, pharmacovigilance and logistics

• Quality control check

• Seal testing

• Stability Testing

• Special Import Requirements for Pallets

91

EX-10.2

Exhibit 10.2

AMENDMENT No. 5 TO LICENSE & OPTION AGREEMENT

THIS AMENDMENT No. 5 TO THE LICENSE & OPTION AGREEMENT (“Amendment No. 5”) is made and entered into this February 3, 2006 (the “Amendment No. 5 Effective Date”) by and between Oscient Pharmaceuticals Corporation (“OSCIENT”), a Massachusetts corporation, having a principal place of business at 1000 Winter Street, Suite 2200, Waltham, MA 02451, and LG Life Sciences, LTD (“LGLS”), a corporation organized under the laws of the Republic of Korea, having a principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea. LGLS and OSCIENT may be referred to herein individually as a “Party” and collectively as the “Parties”.

W I T N E S S E T H

WHEREAS, LGLS and Genesoft Pharmaceuticals, Inc. (“Genesoft”) entered into a certain License and Option Agreement dated October 22, 2002 and amended said License and Option Agreement by Amendment No. 1 dated November 21, 2002, Amendment No. 2 dated December 6, 2002, Amendment No. 3 dated October 16, 2003 and Amendment No. 4 dated March 31, 2005 (as amended, the “License”);

WHEREAS, Genesoft merged into Genesoft Pharmaceuticals, LLC (then Guardian Holdings, LLC (“Guardian”)) on February 6, 2004 and the benefits of and obligations under the License were assigned to Guardian, and then, Guardian assigned all of its right, title and interest in, to and under the License to OSCIENT;

WHEREAS, the Parties desire to amend the License to, among other things, amend the supply price paid by Oscient and to amend the royalty rate with respect to Product sales in Mexico and Canada; and

WHEREAS, the terms used herein with capital initial letters and not otherwise defined shall have the same meanings as set forth in License.

NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. A new Section 4.3(d) shall be inserted as follows:

4.3 Co-Promotion.

(d) (i) Upon OSCIENT entering into a strategic relationship with a Third Party which grants such Third Party a sublicense to commercialize Product (a “Partnership”) in Mexico within ***** days from the Amendment No. 5 Effective Date, LGLS’ option under subsection 4.3(a) above with respect to Mexico shall terminate and no longer be exercisable; provided that, the Parties agree that such *****-day period may be extended by mutual agreement of the Parties.

(ii) Upon OSCIENT entering into a Partnership in Canada within ***** days from the Amendment No. 5 Effective Date, LGLS’ option under subsection 4.3(a) above with respect to Canada shall terminate and no longer be exercisable; provided that, the Parties agree that such *****-day period may be extended by mutual agreement of the Parties.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

2. Section 5.1(a) (ii) shall be deleted in its entirety and replaced with the following:

5.1 General.

(a) (ii) Following the expiration or termination of the Initial Period and until the expiration or termination of the License (the “Remaining Period”), LGLS shall supply to OSCIENT, and OSCIENT shall exclusively purchase from LGLS, all of OSCIENT’s requirements of API in bulk form according to the API Specifications; provided that, notwithstanding anything herein to the contrary, Oscient’s obligation to exclusively purchase bulk API from LGLS for Final Product or API to be supplied in Mexico or Canada shall expire on the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in Mexico or Canada, as the case may be; provided that, OSCIENT agrees that it shall exclusively purchase from LGLS all requirements of API in bulk for Mexico and/or Canada, as the case may be, so long as OSCIENT continues to supply API or Final Product in Mexico or Canada pursuant to a Partnership.

3. Section 5.2 (iii) shall be deleted in its entirety and replaced with the following:

5.2 Supply Price.

(iii) The supply price for API provided by LGLS to OSCIENT during the Remaining Period, shall be equal to ***** percent of LGLS’s Fully Burdened Cost of Manufacture for API supplied thereunder, which shall in no event ***** $***** per kg ***** $***** per kg. In addition, if total purchases by OSCIENT plus any other purchasers of bulk API is greater than ***** kg in any calendar year, the $***** supply price shall be reduced by $***** per kg for each additional ***** kg of API purchased in excess of ***** kg in such calendar year by OSCIENT plus any other purchasers; provided however, that in the event OSCIENT purchases more than ***** kg of API in any calendar year (the first such calendar year, the “Threshold Year”), OSCIENT shall pay LGLS $***** per kg for all API purchased during such calendar year. Within thirty (30) days after the end of the Threshold Year, LGLS shall reimburse OSCIENT the difference between (a) the actual amount paid by OSCIENT for API purchased during such year and (b) $***** per kg times the number of kg purchased for such year. After the Threshold Year, OSCIENT shall continue to pay $***** per kg unless OSCIENT purchases less than ***** kg of API during any calendar year. In the event OSCIENT purchases less than ***** kg of API during such calendar year, OSCIENT shall pay LGLS the difference between (x) $***** times the number of kg purchased and (y) the amount paid to LGLS for API purchased during such calendar year (i.e. $***** times the number of kg purchased) within thirty (30) days after the end of such calendar year. In the event that there is an interruption in LGLS’s supply of API for any reason, which continues uncured for more than ***** days, then OSCIENT shall have the right to procure an alternative source of supply for the duration of the interruption (“Second Source Supplier”). Notwithstanding the foregoing, OSCIENT shall only have the right to procure a Second Source Supplier in the event that the interruption arises with respect to a supply order quantity, which is less than or equal to ***** percent of the quantity anticipated by OSCIENT in the most recently updated forecast, immediately preceding the submission of the supply order. LGLS shall have the opportunity to resume its supply of API upon the elimination or resolution of the events causing the interruption; provided that, however, LGLS shall not resume its role as the exclusive supplier until OSCIENT is able to negotiate a termination of its purchase obligations with the Second Source Supplier; and provided further that OSCIENT shall use commercially reasonable efforts to enter into an agreement with a Second Source Supplier that allows for such termination of OSCIENT’s purchase obligations within ***** months of notice to the Second Source Supplier (provided that, Oscient shall not enter into an agreement with a Second Source Supplier that requires more than ***** months notice to terminate an agreement without LGLS’ prior consent, such consent not to be unreasonably withheld or delayed). LGLS shall be responsible for any expenses incurred in excess of the price set forth herein; provided, however, that LGLS shall not be responsible for such excess expenses to the extent that such interruption is due to the negligence or malfeasance of OSCIENT.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

4. The first sentence of Section 5.5.5 shall be amended to read as follows:

“Upon the commencement of the Remaining Period, OSCIENT shall provide to LGLS a non-binding forecast of the quantities of API to be manufactured during the forthcoming *****-year period for each country in the Territory, including, without limitation, Mexico and Canada.”

All other parts of Section 5.5.5 shall remain unchanged.

5. Section 9.3 shall be deleted in its entirety and replaced with the following:

9.3 Sub-licensing. OSCIENT may sub-license the license granted to it hereunder on prior notice to LGLS. Upon prior notice to OSCIENT, LGLS may sub-license the license granted to it with respect to GS Know-how (including, without limitation, data and information related to the 5-Day CAP trial or other additional indications for the Product developed by OSCIENT) to Third Parties; provided that, LGLS may not sub-license its rights to such GS Know-how to any Third Party intending to commercialize the Product in any country in the Territory or, without OSCIENT’s prior consent, any country listed on Exhibit A attached hereto.

6. Section 10.2 shall be deleted in its entirety and replaced with the following:

10.2 Milestone Payments. Within 30 days after the achievement of each milestone set forth below, OSCIENT shall owe a non-refundable milestone payment to LGLS in the amount set forth below. Each milestone payment shall be due only once, notwithstanding the number of Products actually developed or commercialized by OSCIENT hereunder. Milestone Payments 1, 2 and 3, when earned by LGLS, shall be payable in two installments, the first of which shall be payable on the first day of July or the first day of January (which comes first following the date on which the milestone was earned) and the second installment due six months thereafter. All other milestone payments shall be due 30 days after the relevant milestone event unless otherwise indicated.

Milestone Event	Payment
1. Upon annual Net Sales in the United States reaching $*****.	$	*****
2. Upon both: (i) approval for the first Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $*****.	$	*****
3. Upon both: (i) approval for a second Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $*****.	$	*****
4. Upon approval of the Product for an Initial Indication in the United Kingdom.	$	*****
5. Upon approval of the Product for an Initial Indication in the first of Italy, Germany, France, or Spain.	$	*****
6. Upon signing of each Partnership in Mexico.	$	*****
7. Upon signing of each Partnership in Canada.	$	*****
8. Upon approval of the Product in Mexico.	$	*****
9. Upon approval of the Product in Canada, except for any indication approved prior to the Amendment # 5 Effective Date.	$	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

As used in this Section 10.2, “IV formulation” shall mean a formulation of Product for intravenous administration.

7. Section 10.3 shall be deleted in its entirety and replaced with the following:

10.3 Royalty Payments. In addition to the foregoing license fee and milestone payments, commencing on the second anniversary of the first commercial sale of Product in the United States of America,

(i) OSCIENT shall, subject to Sections 4.3 and 10.4, pay to LGLS royalties on Net Sales in the Territory, except for (a) any Net Sales in Mexico if OSCIENT enters into a Partnership in Mexico with a Third Party and (b) any Net Sales in Canada if OSCIENT enters into a Partnership in Canada with a Third Party, for each calendar year at the following rates:

Annual Net Sales	Royalty Rate
On the first $*****	***** percent
Over $***** to $*****	***** percent
Over $***** to $*****	***** percent
Over $***** to $*****	***** percent
Over $*****	***** percent

(ii) OSCIENT shall, subject to Sections 4.3 and 10.4 and in lieu of the royalty obligations set forth in Section 10.3(i) above with respect to Net Sales in Mexico and Canada, pay to LGLS (a) a royalty of *****% on Net Sales in Mexico for each calendar year if Oscient enters into a Partnership in Mexico within ***** days of the Amendment No. 5 Effective Date, and (b) a royalty of *****% on Net Sales in Canada for each calendar year if Oscient enters into a Partnership in Canada within ***** days of the Amendment No. 5 Effective Date; provided, however, that if the Partnership entered into in Mexico or Canada, as the case may be, terminates, then from and after such termination the royalties payable in respect of Net Sales in Mexico or Canada, as the case may be, shall be paid in accordance with clause (i) of this Section 10.3.

The Parties acknowledge that LGLS has incurred a royalty obligation to GLAXO at a rate of ***** percent of Net Sales for the use of the GLAXO Patents, the GLAXO Know-how and the Trademarks (the “GLAXO Royalty”). During the first two years following first commercial sale of Product in the Territory, OSCIENT shall be solely responsible only for payment of the GLAXO Royalty, and all amounts so due shall be paid in accordance with Sections 10.7 through 10.11 below. Thereafter (a) OSCIENT shall pay royalties to LGLS at the royalty rates set forth above, and (b) LGLS shall be solely responsible for payment of the GLAXO Royalty and shall indemnify OSCIENT and hold OSCIENT harmless from and against any claims by GLAXO as a result of such use by OSCIENT of the GLAXO Patents.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

8. Section 10.4 shall be deleted in its entirety and replaced with the following:

10.4 Term of Royalty Obligations. OSCIENT’s obligation to make royalty payments pursuant to 10.3 shall commence as provided in Section 10.3 and shall continue until the later of: (i) the expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in such country, and (ii) 10 years after first commercial sale of such Product in such country; provided however, that, OSCIENT’s obligation to make royalty payments pursuant to 10.3 for Net Sales in Mexico and Canada shall continue until the later of: (I) the expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in Mexico or Canada, as the case may be, and (II) the period of data exclusivity in Mexico or Canada, as the case may be. Following the expiration of OSCIENT’s royalty obligations, OSCIENT shall retain a non-exclusive, royalty-free right to use, sell and offer for sale Product in the Territory, using LGLS Know-how and GLAXO Know-how licensed to OSCIENT as of the Effective Date and the exclusive right to use the Trademarks for such purposes. OSCIENT shall continue to pay LGLS a royalty in return for such right to use the Trademark, as provided in Section 11.4, below.

9. Section 10.8(b) shall be amended to add to the end of the paragraph the following sentence:

On and after the Threshold Year, this Section 10.8(b) shall be of no force and effect.

10. (i) Sections 1 (as to Section 4.3(d)(i) of the License), 2 (as to Section 5.1(a)(ii) of the License with respect to supply of Product in Mexico), 6 (as to milestone Nos. 6 and 8 only), 7 (as to Sections 10.3(i)(a) and 10.3(ii)(a) of the License), and 8 (as to Section 10.4(I) & (II) of the License (with respect to Mexico)) of this Amendment No. 5 shall become null and void within ***** days of the Amendment 5 Effective Date unless (a) OSCIENT enters into a Partnership in Mexico within ***** days of the Amendment No. 5 Effective Date, or (b) the Parties mutually agree to extend such *****-day period.

(ii) Sections 1 (as to Section 4.3(d)(ii) of the License), 2 (as to Section 5.1(a)(ii) of the License with respect to supply of Product in Canada), 6 (as to milestone Nos. 7 and 9 only), 7 (as to Sections 10.3(i)(b) and 10.3(ii)(b) of the License), and 8 (as to Section 10.4(I) & (II) of the License (with respect to Canada)) of this Amendment No. 5 shall become null and void within ***** days of the Amendment 5 Effective Date unless (a) OSCIENT enters into a Partnership in Canada within ***** days of the Amendment No. 5 Effective Date, or (b) the Parties mutually agree to extend such *****-day period.

11. Notwithstanding the foregoing or any other provision of this Amendment No. 5, Section 3 (dealing with Section 5.2 Supply Price of the License), Section 5 (dealing with Section 9.3 Sub-licensing of the License) and Section 9 (dealing with Section 10.8(b) of the License) of this Amendment No. 5 shall be and remain in full force and effect as of the Amendment No. 5 Effective Date.

12. Except as is expressly provided herein the License shall remain in full force and effect.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

[Remainder of page left intentionally blank]

IN WITNESS WHEREOF, the Parties have caused this Amendment No. 5 to be executed by their duly authorized officers on the Amendment No. 5 Effective Date.

OSCIENT PHARMACEUTICALS CORPORATION		LG LIFE SCIENCES LTD.
By:	/s/ Steven M. Rauscher	By:	/s/ In-Chull Kim
Name:	Steven M. Rauscher	Name:	In-Chull Kim
Title:	Chief Executive Officer & President	Title:	Chief Executive Officer & President
Date:		Date:

EXHIBIT A

Poland

Czech Republic

Slovakia

Slovenia

Hungary

Estonia

Latvia

Lithuania

Liechtenstein

Malta

Cypress

Romania

Bulgaria

Croatia

Serbia and Montenegro

Bosnia and Herzegovina

Macedonia

Albania

EX-10.3

Exhibit 10.3

VICURON PHARMACEUTICALS INC.

AND

OSCIENT PHARMACEUTICALS CORPORATION

ASSIGNMENT AND TERMINATION AGREEMENT

THIS ASSIGNMENT AND TERMINATION AGREEMENT (the “Agreement”) is made effective as of the 3^RD day of February, 2006 (the “Effective Date”) by and between Oscient Pharmaceuticals Corporation (formerly known as Genome Therapeutics Corporation), a Massachusetts corporation having its principal place of business at 1000 Winter Street, Suite 2200, Waltham, MA 02451, USA (“Oscient”) and Vicuron Pharmaceuticals Inc., a Delaware corporation with its principal place of business at 455 South Gulph Road, Suite 305, King of Prussia, PA 19406, USA (for itself and as successor-in-interest to Biosearch Italia, “Vicuron”). Oscient and Vicuron are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

A. Vicuron is a biopharmaceutical company that discovers, develops and manufactures medicines for hospital-based infectious diseases. On September 14, 2005, Pfizer Inc. acquired Vicuron (formerly known as Versicor Inc.), the successor to Biosearch Italia (“Biosearch”), an Italian pharmaceutical company. Biosearch discovered and partly developed a proprietary compound named Ramoplanin. Vicuron is now a wholly-owned subsidiary of Pfizer.

B. Oscient is a biopharmaceutical company committed to the clinical development and commercialization of novel therapeutics to address unmet medical needs and is interested in completing the development of Ramoplanin and commercializing Ramoplanin.

C. On October 8, 2001 Biosearch entered into a License and Supply Agreement with Oscient to permit the latter to develop and commercialize in the United States and Canada (including the territories and possessions of each such country) Ramoplanin for the treatment or prevention of any human disease (together with Amendment No. 1 dated as of August 8, 2002 and the letter agreement dated as of October 22, 2002, the “License and Supply Agreement”).

D. Oscient and Vicuron (who has assumed the rights and obligations of Biosearch under the License and Supply Agreement by virtue of the merger of Versicor and Biosearch) wish to terminate the License and Supply Agreement and simultaneously enter into a new agreement by which, among other actions, Vicuron will assign to Oscient certain property related to Ramoplanin on the terms and conditions set forth in this Agreement.

ARTICLE 1

DEFINITIONS

The following terms shall have the following meanings as used in this Agreement:

1.1 “Affiliate” means an entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with Vicuron or Oscient, as the case may be.

1.2 “Assigned Property” shall have the meaning set forth in Section 3.1.

1.3 “Bulk Compound” means the bulk form of the Compound meeting the Specifications and used to manufacture Product.

1.4 “Commercialization” shall mean all activities undertaken by Oscient or its designees relating to the manufacture and sale of Product in the Territory, including advertising, education, marketing, distribution and post-approval product support clinical studies conducted after Regulatory Approval of a Product for a particular indication.

1.5 “Compound” means the compound known as Ramoplanin, as described in *****.

1.6 “Control” means possession of the ability to grant rights as provided for herein without violating the terms of any agreement or other arrangement with any Third Party.

1.7 “Derivative Patents” shall mean the patents and patent applications listed on Schedule 1.7 and all related patent applications, including divisions, reissues, continuations, continuations-in-part, re-examination applications and extensions thereof and all foreign counterpart patents and patent applications.

1.8 “Development” means all activities relating to obtaining Regulatory Approval of a Product, Product delivery systems and new indications thereof and all activities relating to developing the ability to manufacture the same.

1.9 “Excluded Trademarks” means those trademarks listed on Schedule 1.9.

1.10 “FDA” means the United States Food and Drug Administration or any successor agency thereto.

1.11 “Former Partner” shall mean that certain company with which Biosearch entered into a License and Supply Agreement dated May 8, 1998 and an amendment thereto effective as of June 1, 2001.

1.12 “Global Trademarks” means all trademarks except for Excluded Trademarks, including without limitation any registrations and common law rights associated therewith, and any goodwill associated with any of the foregoing, used for or in connection with Products, Bulk Compound, and Compound.

1.13 “Global Tradenames” means all tradenames, including without limitation any registrations and common law rights associated therewith, and any goodwill associated with any of the foregoing, used for or in connection with Products, Bulk Compound, and Compound.

1.14 “IND” (or “Investigational New Drug Application”) means an application as defined in the United States Food, Drug and Cosmetic Act and applicable regulations promulgated thereunder to the FDA or the equivalent application to the equivalent agency in jurisdictions outside the United States, the filing of which is necessary to commence clinical testing of Products in humans.

1.15 “Information” means any and all techniques and data, inventions, discoveries, practices, processes, methods, knowledge, results, trade secrets or other know-how, skill, experience, test data including pharmacological, toxicological, non-clinical and clinical data, medical literature compilations, and analytical and quality control data or descriptions.

1.16 “Joint Patent” means any inventions made jointly by personnel of Vicuron (or its Affiliates) and Oscient under the License and Supply Agreement.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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1.17 “Materials” means any and all (i) compounds, compositions of matter, strains, cell lines and banks, assays and biological materials, including *****, and other related proprietary strains, and (ii) all other documents, files, diagrams, specifications, designs, schematics, reports, records, laboratory notebooks, manufacturing and other materials, packaging, commercial and market information, prototypes, test devices, models or simulations, or other written, graphic, biologic or other tangible material in any medium.

1.18 “NDA” means an application as defined in the United States Food, Drug and Cosmetic Act and applicable regulations promulgated thereunder to the FDA, or the equivalent application to the equivalent agency in jurisdictions outside the United States, the filing of which is necessary to commence the commercial sale of Products.

1.19 “Net Sales” means the gross sales with respect to a Product in final dosage form by Oscient, its Affiliates or its licensees to a Third Party end user, based upon the approval received from the FDA or RHA, less (i) discounts, including cash discounts, and/or rebates (including government-mandated rebates), retroactive price reductions or allowances actually allowed or granted from the billed amount, (ii) credits or allowances actually granted upon claims, rejections or returns of such Products, including recalls, (iii) freight, postage, shipping and insurance charges paid for delivery of Product, to the extent both billed and Oscient bears the cost of freight and insurance for a Product, and (iv) taxes (except income taxes), duties or other governmental charges levied on or measured by the billing amount when included in billing, as adjusted for rebates and refunds. Net Sales shall be determined from books and records maintained in accordance with generally acceptable accounting principles in the United States, consistently applied.

In the event Vicuron is receiving royalties under this Agreement from any Product sold in the form of a combination product containing one or more active ingredients in addition to the Compound, Net Sales for such combination product will be calculated by multiplying actual Net Sales by the fraction A/(A+B) where A is the fair market value of the portion of the combination product that contains the Compound and B is the fair market value of the other active ingredients included in such combination product, as determined by market prices of such portions if separately priced and sold. If, on a country-by-country basis, the other active ingredient or ingredients in the combination are not sold separately in that country, Net Sales shall be calculated by multiplying actual Net Sales of such combination product by the fraction A/C where A is the fair market value of the Product if sold separately, and C is the fair market value of the combination product. If, on a country by country basis, neither the Product nor the other active component or components of the combination product is sold separately in said country, Net Sales shall be determined by mutual agreement of both the parties acting in good faith. As used herein, the term “active ingredient” does not include ingredients the primary effect of which is the enhancement of drug delivery, even if such ingredients have pharmacological activity.

1.20 “New Territory” means all countries and territories worldwide other than those included in the Original Territory.

1.21 “Original Territory” means the United States and Canada and the territories and possessions of each of the foregoing countries.

1.22 “Patent” means (i) valid and enforceable patents, re-examinations, reissues, renewals, extensions, term restorations and foreign counterparts thereof, and (ii) pending (at any time during the term of this Agreement) patent applications and foreign counterparts thereof.

1.23 “Patent Rights” means any and all (a) U.S. or foreign patents, (b) U.S. or foreign patent applications, including, without limitation, all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, and all patents granted thereon, (c) all patents-of-addition, reissues, reexaminations and extensions or restorations by existing or future extension or restoration mechanisms, including, without limitation, supplementary protection certificates or the equivalent of any of the foregoing, (d) any other form of government-issued right substantially equivalent to any of the foregoing, and (e) any and all foreign counterparts of the foregoing.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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1.24 “Product” means any product including or incorporating any formulation of the Compound.

1.25 “Regulatory Approval” means any and all approvals (including pricing and reimbursement approvals, if appropriate), product and/or establishment licenses, registrations, authorizations, or designations of any federal, state or local regulatory agency, department, bureau or other governmental entity, necessary or used for the Development, manufacture, use, or storage of Products in a regulatory jurisdiction, including, without limitation, INDs, NDAs, any fast track or orphan drug designation or other similar designations, and data or market exclusivity.

1.26 “Regulatory Filing” means any and all filings, submissions or communications with or to the FDA or RHA which relate to the Product or Regulatory Approvals, whether or not obtained, and any other documents related thereto, including without limitation any filings, submissions, communications or documents associated with an IND, NDA or fast track or orphan drug designation.

1.27 “RHA” means any relevant government health authority (or successor agency thereto) in any country, other than the FDA, whose Regulatory Approval is necessary to market and sell the Product in the relevant country of the Territory.

1.28 “Royalty” shall have the meaning set forth in Section 7.1.

1.29 “Specifications” means the current specifications for Bulk Compound as attached to this Agreement as Exhibit I.

1.30 “Territory” means all countries and territories worldwide.

1.31 “Third Party” means any entity other than Vicuron or Oscient or their Affiliates.

1.32 “Vicuron Know-how and Materials” means any and all Information and Materials owned or Controlled by Vicuron that is directly related to or is used solely in connection with the Bulk Compound, Compound, or Products, or the manufacturing, Development or Commercialization thereof. Without limiting the foregoing, Vicuron Know-how and Materials does not include Information and Materials that is developed or acquired by Vicuron or its Affiliates if such Information and Materials have only an incidental, and not direct, relationship to any Bulk Compound, Compound or Products.

1.33 “Vicuron Licensed Know-how and Materials” means any and all Information and Materials owned or Controlled by Vicuron that is not Vicuron Know-how and Materials and that is necessary, required, or used in connection with the manufacturing, Development and Commercialization of Bulk Compound, Compound, and Products.

1.34 “Vicuron Patents” means the patents listed on Schedule 3.1(a) hereto.

1.35 “Vicuron Regulatory Approvals” means those Regulatory Approvals owned or Controlled by Vicuron.

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ARTICLE 2

TERMINATION

2.1 Termination of the License and Supply Agreement; New Agreement. The Parties agree that this Agreement shall supercede the License and Supply Agreement, which shall be and hereby is terminated as of the Effective Date, and, notwithstanding any provisions of the License and Supply Agreement to the contrary, no rights, obligations or liabilities of the Parties under the License and Supply Agreement shall survive this termination except for the rights, obligations and liabilities of both Parties under Sections 12.2 (Representations), 13 (“Indemnification”) and 14 (“Miscellaneous”) and Vicuron’s obligations or liabilities under Section 9 (“Confidentiality”) thereof.

ARTICLE 3

ASSIGNMENT AND LICENSE

3.1 Assignment of Property. Vicuron hereby sells, transfers, and assigns to Oscient the following rights, free and clear of any liens, charges, claims, encumbrances or restrictions whatsoever (“Assigned Property”):

(a) all of Vicuron’s rights, title, and interests in and to the Vicuron Patents listed on Schedule 3.1(a) to this Agreement, and all Patent Rights issuing or arising therefrom, to the full end of their terms (“Assigned Patents”);

(b) all of Vicuron’s rights, title and interests in and to the Vicuron Know-how and Materials (“Assigned Know-how”);

(c) all of Vicuron’s rights, title and interests in and to the Global Trademarks and Global Tradenames, including those listed on Schedule 3.1(c) to this Agreement;

(d) all of Vicuron’s rights, title and interests in and to Regulatory Filings and Vicuron Regulatory Approvals;

(e) any other rights, title and interests of Vicuron that are necessary or used in the Development, Commercialization, and manufacture of the Bulk Compound, Compound, and Products; and

(f) any and all causes of action, claims, demands or other rights, occasioned from or because of any and all past and future infringement, misappropriation, dilution or any other violation of rights of any of the Assigned Property, including all rights to recover damages, profits and injunctive relief for infringement of any of the Assigned Property.

3.2 Further Assurances. Vicuron shall execute and sign such further assignments, including the patent and trademark assignment forms provided in Exhibits II and III, respectively, instruments, applications and documents, and do or cause to be done such other acts and things, as may reasonably be required by Oscient to effectively vest in Oscient all of the Assigned Property, except that Vicuron shall not be required to file any patent or trademark assignments with any governmental authorities or agencies anywhere in the Territory.

3.3 No Assumption of Liabilities or Obligations.

(a) Except as expressly set forth in this Agreement, Oscient is not assuming and shall not be liable for any contractual obligations of Vicuron or its Affiliates or any other liabilities or obligations of Vicuron or its Affiliates of any nature, fixed or contingent, disclosed or undisclosed, to the extent that such liabilities or obligations arose, or related to an act, omission or breach occurring, prior to the Effective Date, which such liabilities or obligations pertain to the Assigned Property or arise from the consummation of the transactions contemplated hereunder, all of which liabilities and obligations shall remain the sole responsibility of Vicuron.

5

(b) Except as expressly set forth in this Agreement, Vicuron is not assuming and shall not be liable for any contractual obligations of Oscient or its Affiliates or any other liabilities or obligations of Oscient or its Affiliates of any nature, fixed or contingent, disclosed or undisclosed, to the extent that such liabilities or obligations arose, or related to an act, omission or breach occurring, on or following the Effective Date, which such liabilities or obligations pertain to the Assigned Property or arise from the consummation of the transactions contemplated hereunder, all of which liabilities and obligations shall be sole responsibility of Oscient.

3.4 License. Vicuron hereby grants to Oscient a worldwide, irrevocable, royalty-free, non-exclusive license, with the right to sublicense under the Vicuron Licensed Know-how and Materials, to manufacture, Develop and Commercialize Bulk Compound, Compound, and Products; provided, however, that in the event that Vicuron is required to pay any fees associated with Oscient’s use of any Vicuron Licensed Know-how and Materials on or following the Effective Date, Vicuron will notify Oscient of such fees and if Oscient agrees in writing to obtain such license, Vicuron and Oscient will negotiate in good faith to determine the amount of royalty or other payment due to Vicuron in consideration for the license granted pursuant to this Section 3.4.

3.5 Right of Negotiation for Derivative Patents. The Parties further agree that, if Vicuron has not licensed all or a portion of its rights under a Derivative Patent to a Third Party, or assigned or otherwise transferred a Derivative Patent to a Third Party on or before the ***** of the Effective Date (“Option Date”), Oscient may request within a ***** day period following the Option Date to discuss with Vicuron the terms upon which Oscient will accept the assignment of such Derivative Patent. The Parties shall meet after such request and negotiate in good faith the potential terms of an agreement on such terms. If the Parties do not enter into such an agreement within ***** days after Oscient so requests to negotiate such opportunity with Vicuron (“Negotiation Period”), then Vicuron shall thereafter be free to offer such opportunity to a Third Party with respect to such Derivative Patent; provided, however, that Vicuron shall not enter into any agreement with any Third Party with respect to such Derivative Patent on terms that are more favorable to such Third Party than those last offered by Vicuron to Oscient during the Negotiation Period. In the event that Vicuron does not enter into any agreement with any Third Party with respect to such Derivative Patent within ***** days after the Negotiation Period, Vicuron and Oscient shall enter into an agreement on terms last offered by Oscient during the Negotiation Period. Vicuron agrees to give Oscient prompt notice in writing if Vicuron licenses or assigns all or a portion of its rights under any Derivative Patent to a Third Party.

ARTICLE 4

EXECUTION FEE; MILESTONE PAYMENTS

4.1 Execution Fee. As partial payment for the Assigned Property granted by Vicuron pursuant to Article 3 of this Agreement, Oscient shall pay to Vicuron, within two (2) business days after the Effective Date, ***** Dollars (U.S.$ *****), cash by wire transfer (same value date).

4.2 Milestone Payments for Original Territory. Oscient or its licensee shall make the following milestone payments to Vicuron within ten (10) business days after the first achievement of each of the following milestones with respect to the Product in the Original Territory:

(i) ***** Dollars (U.S. $*****) payable upon filing of the U.S. NDA with the FDA.

(ii) ***** Dollars (U.S. $*****) payable upon approval of the U.S. NDA by the FDA.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

6

4.3 Milestone Payments for New Territory. Oscient or its licensee shall make the following milestone payments to Vicuron within ten (10) business days after the first achievement of each of the following milestones with respect to the Product in the New Territory:

(i) ***** Dollars (U.S. $*****) payable upon filing of an NDA with the European Agency for the Evaluation of Medicinal Products (“EMEA”).

(ii) ***** Dollars (U.S. $*****) payable upon receipt of Regulatory Approval of an NDA from the EMEA.

(iii) ***** Dollars (U.S. $*****) payable upon filing of an NDA in Japan.

(iv) ***** Dollars (U.S. $*****) payable upon receipt of Regulatory Approval of an NDA in Japan.

Any grant by Oscient of a license to a Third Party shall not affect Vicuron’s right to receive milestone payments as provided in Sections 4.2 and 4.3. Oscient shall remain responsible for the payments due to Vicuron pursuant to Sections 4.2 and 4.3 in the event it grants any such license. The payment amounts are nonrefundable and noncreditable.

ARTICLE 5

TECHNOLOGY TRANSFER

5.1 Transfer of Vicuron Know-how and Materials.

(a) Within thirty (30) days of the Effective Date, Vicuron shall deliver and transfer to Oscient, or Oscient’s designee, all Vicuron Know-how and Materials, Vicuron Licensed Know-how and Materials, and Regulatory Filings to a location designated by Oscient and in accordance with commercially reasonable procedures for a transfer of this type. Vicuron will provide Oscient with all reasonable assistance required to transfer the Vicuron Know-how and Materials, Vicuron Licensed Know-how and Materials, Regulatory Filings and Vicuron Regulatory Approvals, and the benefit thereof, to Oscient or Oscient’s designee. Without limiting the generality of the foregoing, (a) Vicuron shall provide Oscient or its designee with all Information and Materials in its possession necessary to enable it to manufacture the Bulk Compound and Product, and (b) if visits with personnel of Vicuron and its Affiliates are reasonably requested by Oscient for purposes of transferring the Vicuron Know-how and Materials, Vicuron Licensed Know-how and Materials, Regulatory Filings and Vicuron Regulatory Approvals to Oscient or its designee, or for purposes of Oscient’s acquiring expertise on the practical application and use of the Vicuron Know-how and Materials, Vicuron Licensed Know-how and Materials, Regulatory Filings or Vicuron Regulatory Approvals or of assisting Oscient or its designee on issues arising during such transfer and transition, then, on a reasonable schedule to be agreed upon by the Parties, qualified personnel from each Party with appropriate technical or regulatory expertise who are familiar with all aspects of the Vicuron Know-how and Materials, Vicuron Licensed Know-how and Materials, Regulatory Filings and Vicuron Regulatory Approvals shall meet at such facilities or locations as may be mutually agreed upon, and shall participate in telephone conference calls so that the personnel from Vicuron can transfer knowledge to Oscient personnel about manufacture of the Products. The Parties now anticipate that these in-person meetings shall occur at mutually agreed locations and that telephone conference calls shall occur regularly for a period of at least ***** months from the Effective Date, it being agreed that there shall be no more than ***** days of in-person meetings during such *****-month period unless the Parties agree to additional meetings. Notwithstanding the foregoing, until Oscient or its designee *****, Vicuron shall make available to Oscient Vicuron’s then-current employees or then-current consultants who have expertise or knowledge relevant to the manufacture of Bulk Compound on a reasonable schedule to be agreed upon by the Parties. The transfer of Vicuron Know-how and Materials and Vicuron Licensed Know-how and Materials to Oscient shall be complete only upon Vicuron’s

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

7

satisfaction of the foregoing requirements. Vicuron and its Affiliates agree to cooperate with Oscient and applicable regulatory authorities to the extent reasonably necessary to effect the successful transfer of Regulatory Filings and Vicuron Regulatory Approvals.

(b) As of the Effective Date, Vicuron has designated Jeffrey Meckler as its primary contact person and Oscient has designated Diane McGuire as its primary contact person. The primary contact persons shall be responsible for oversight of the interactions and activities described in Section 5.1(a) and shall attempt to resolve any questions that arise during the course of such transfer.

ARTICLE 6

BULK COMPOUND

6.1 Transfer of Bulk Compound. Vicuron agrees to provide Oscient with any or all of the Bulk Compound for no additional consideration. Vicuron estimates there is approximately ***** kg of Bulk Compound.

ARTICLE 7

ROYALTIES; PAYMENT PROCEDURES AND RECORDS

7.1 Royalties. Oscient shall pay to Vicuron a royalty equal to (a) ***** percent (*****%) of Net Sales in the Original Territory and (b) ***** percent (*****%) of Net Sales in the New Territory (collectively “Royalty”).

7.2 Sales by Licensees. If Oscient grants a license under the rights granted to it pursuant to Article 3, then such license shall include an obligation for the licensee to account for and report to Oscient its Net Sales of such Products on the same basis as if such sales were Net Sales by Oscient, and Oscient shall pay Royalties to Vicuron on such sales as if the Net Sales of the licensee were Net Sales of Oscient.

7.3 Royalty Reports.

(a) Oscient will deliver to Vicuron a report showing in detail its calculation of the Net Sales and quantities of any Products sold by Oscient during a given calendar quarter within ***** days following the end of such quarter for which Royalty payments are due from Oscient. Oscient shall pay the Royalty due on Net Sales during the calendar quarter covered by a given report under this Section 7.3 simultaneously with the delivery of such report to Vicuron.

(b) Oscient will deliver to Vicuron a report showing in detail its calculation of the Net Sales and quantities of any Products sold by Oscient’s licensees during a given calendar quarter to Vicuron within ***** business days following Oscient’s receipt of such report by its licensees. Oscient shall pay the amounts due to Vicuron on Net Sales by Oscient’s licensees pursuant to Section 7.2 simultaneously with the delivery of such report to Vicuron. Oscient shall use reasonable efforts to have licensees provide such report in a timely fashion after the end of each calendar quarter and each calendar year.

7.4 Exchange Rate; Manner and Place of Payment. All amounts paid to Vicuron hereunder shall be paid in United States currency. Net Sales shall be accounted for on a monthly basis in U.S. Dollars at the spot rate of exchange published by the Board of Governors of the Federal Reserve System in Statistical Release H.10 (http://www.federalreserve.gov/releases/H10) for each month on the last banking day of such month. All payments due to Vicuron under this Agreement shall be made by wire transfer at a bank and to an account designated by Vicuron, unless otherwise specified by Vicuron.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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7.5 Late Payments. In the event that any payment due hereunder is not made when due, interest shall accrue on the late payment from the due date of such payment at *****. The payment of such interest shall not limit any Party from exercising any other rights it may have as a consequence of the lateness of the payment.

7.6 Record Keeping. During the term of this Agreement (as described in Section 10.1), Oscient shall keep full and accurate books and records setting forth, for the Product on which payments are due, gross sales, all deductions allowed in arriving at Net Sales and any other information necessary and in sufficient detail to allow the calculation of payments to be paid by Oscient. During the term of this Agreement and for a period of ***** years thereafter, Oscient shall permit Vicuron, at Vicuron’s expense, by independent certified public accountants employed by Vicuron or Pfizer and reasonably acceptable to Oscient, to examine relevant books and records at any reasonable time, not more often than ***** each calendar year, within two (2) years of any such payment. The opinion of said independent accountants regarding such reports, accountings and payments shall be binding on the Parties, other than in the case of manifest error. Vicuron shall bear the cost of any such examination and review; provided that if the inspection and audit shows an underpayment of royalties of more than ***** percent (*****%) of the amount due for the applicable period, then Oscient shall promptly reimburse Vicuron for all costs incurred in connection with such examination and review. Oscient shall promptly pay to Vicuron the amount of any underpayment of Royalties revealed by an examination and review, together with interest calculated pursuant to Section 7.5. Any overpayment of Royalties by Oscient revealed by an examination and review shall be fully-creditable against future royalty payments under Section 7.1.

7.7 Tax and Withholdings.

(a) Any withholding taxes levied by tax authorities in the Territory on the payments hereunder, to the extent due by Vicuron and not transferable upon Oscient, shall be borne by Vicuron and deducted by Oscient from the sums otherwise payable by it hereunder for payment to the proper tax authorities on behalf of Vicuron. In such event, Oscient shall promptly deliver to Vicuron an official tax certificate or other evidence of such tax obligations, together with proof of payment from the relevant governmental authority of all amounts deducted and withheld sufficient to enable Vicuron to claim such payment of taxes. Oscient agrees to cooperate with Vicuron in the event Vicuron claims exemption from such withholding or seeks deductions under any double taxation or other similar treaty or agreement from time to time in force.

(b) VAT. It is understood and agreed between the Parties that any payments made under Section 7.1 and Article 4 of this Agreement are inclusive of any value added tax imposed upon such payments.

7.8 Right to Offset.

(a) If Oscient believes that it is necessary to enter into an agreement with a Third Party to obtain a license under a patent right or other right that Oscient reasonably believes or expects to be necessary to Commercialize one or more Products (including, e.g., rights under patent applications that, if issued, would be necessary), or if as a result of litigation or settlement of a claim Oscient is required to pay a Thirty Party a royalty or other payment for the right to Develop or Commercialize a Product in the Territory, then Oscient may offset ***** percent (*****%) of the amount of such royalties or other payments payable by Oscient to such Third Party (the “Offset Amount”) against amounts Oscient is obligated to pay Vicuron under this Agreement; provided, however, that any such offset shall not exceed ***** percent (*****%) of such payments otherwise due to Vicuron in each calendar quarter under this Agreement and, and further provided that any portion of the Offset Amount that is not offset in a particular calendar quarter may be carried forward for offset in subsequent calendar quarters.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

9

(b) Notwithstanding Section 7.8(a), if Oscient pays the royalty to Former Partner pursuant to Section 11.4 then Oscient may offset ***** percent (*****%) of the amount of such royalties payable by Oscient to Former Partner (“Former Partner Offset Amount”) against amounts Oscient is obligated to pay Vicuron under this Agreement; provided, however, that any such offset shall not exceed ***** percent (*****%) of the Net Sales, and further provided that any portion of the Former Partner Offset Amount that is not offset in a particular calendar quarter may be carried forward for offset in subsequent calendar quarters.

ARTICLE 8

CONFIDENTIALITY

8.1 Confidentiality; Exceptions. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, Vicuron and its Affiliates agree that they shall keep confidential and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement any Vicuron Know-how and Materials or other Assigned Property, and any other information and materials furnished to it by Oscient or its Affiliates or designees pursuant to this Agreement, or any provisions of this Agreement that are the subject of an effective order of the Securities Exchange Commission granting confidential treatment pursuant to the Securities Act of 1934, as amended (collectively, “Confidential Information”), except to the extent that it can be established by Vicuron or its Affiliates that Confidential Information furnished to it by Oscient or its Affiliates or designees under this Agreement:

(a) was already known to Vicuron or its Affiliates, other than under an obligation of confidentiality, at the time of disclosure by Vicuron or its Affiliates;

(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to Vicuron or its Affiliates;

(c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of Vicuron or its Affiliates in breach of this Agreement; or

(d) was disclosed to Vicuron or its Affiliates, other than under an obligation of confidentiality, by a Third Party who had no obligation to Oscient not to disclose such information to others.

Notwithstanding any other provisions of this Article 8 in this Agreement, the License and Supply Agreement, or any other written agreement between the Parties regarding confidentiality, the Assigned Property, including Vicuron Know-how and Materials, Regulatory Filings, and Vicuron Regulatory Approvals shall be Confidential Information of Oscient.

8.2 Authorized Disclosure. Vicuron or its Affiliates may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or conducting preclinical or clinical trials, provided that if Vicuron or its Affiliates are required by law or regulation to make any such disclosure of Oscient’s Confidential Information it will, except where impracticable for necessary disclosures (for example in the event of medical emergency), give reasonable advance notice to Oscient of such disclosure requirement and, except to the extent inappropriate in the case of patent applications, will cooperate with Oscient at its request and sole expense in Oscient’s efforts to preserve the confidentiality of such information. In addition, Vicuron shall be entitled to disclose, under a binder of confidentiality containing provisions as protective as those of this Article 8, Confidential Information to any Third Party for the purpose of carrying out activities authorized under this Agreement, including disclosures to licensees.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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8.3 Confidentiality of Agreement. The Parties shall agree upon and issue a press release or other public announcement concerning this Agreement to be released as promptly as practicable after execution hereof. Otherwise, and except for references to, or republication of, such press release, the Parties shall keep the terms and conditions of this Agreement confidential, and no public statements concerning the existence or terms of this Agreement shall be made or released in any medium without the prior approval of both Parties. Notwithstanding the above, the Parties each acknowledge that the other Party is a reporting company under the Securities Exchange Act of 1934 and that, as such, each Party may make any public disclosures or releases regarding the execution, delivery, performance or terms of this Agreement that it determines, in its sole reasonable discretion, are necessary or appropriate in light of its status as a public reporting company.

This Article 8 shall survive termination or expiration of this Agreement for a period of five (5) years thereafter.

ARTICLE 9

OWNERSHIP; PATENTS AND TRADEMARKS

9.1 Assigned Property. On and after the Effective Date, Oscient shall have the sole and exclusive rights, title, and interest in and to the Assigned Property and, subject to Section 9.3, shall have sole discretion, authority and responsibility in all matters relating to the Assigned Property and all uses thereof by Oscient, its Affiliates and Third Parties.

9.2 Transfer of Original Files. Vicuron shall deliver to Oscient or Oscient’s designee Vicuron’s original files or scanned electronic images of Vicuron’s originals relating to each of the Assigned Patents, Global Trademarks, and Global Trade Names no later than ***** days after the Effective Date. Vicuron may retain a copy of such files for its records and maintain such copy pursuant to Article 8.

9.3 Patent Filings. Upon and after the Effective Date, Oscient shall have the sole right and authority, and Vicuron shall have no rights or (except as provided in this Agreement) responsibilities, for preparing, filing, obtaining, prosecuting (including any interferences, reissue proceedings and re-examinations) and maintaining throughout the world the Assigned Patents at its own expense, or for having such actions performed by Oscient’s designee; provided, however, that Vicuron shall be responsible, and Oscient shall have no responsibility, for paying any and all such fees and costs that are or remain due or payable as of or after the Effective Date and that relate to the preparation, filing, obtaining, prosecuting or maintaining of Assigned Patents, or were otherwise incurred, prior to the Effective Date. Other than within the ordinary course of prosecution (e.g., abandonment of a pending application in favor of a continuation application), if Oscient elects not to continue the prosecution or maintenance of an Assigned Patent in a particular country, Oscient shall so notify Vicuron promptly in writing and in good time to enable Vicuron to meet any deadlines by which an action must be taken to preserve any such rights in such Assigned Patent in such country. Upon providing such notification to Vicuron, Oscient shall have no further obligations with respect to such Assigned Patent in such particular country. Upon receipt of any such notice by Oscient, Vicuron shall have the right, but not the obligation, to support the continued prosecution or maintenance of such Assigned Patent, at Vicuron’s expense in such country. If Vicuron exercises its right to support such continued prosecution or maintenance of such Assigned Patent, Oscient will assign all of its rights, title, and interests in such Assigned Patent to Vicuron for no additional consideration and will have no further rights or responsibilities with respect to such Assigned Patent.

9.4 Enforcement Rights. Oscient or its designee shall have the sole and exclusive right, but not the obligation, to enforce and defend the Assigned Patents and other Assigned Property, including, without limitation, the right to initiate, prosecute, control and/or settle, and to defend against, any action, proceeding or claim of infringement or misappropriation involving or relating to the Assigned Patents and other Assigned Property. At Oscient’s reasonable request, Vicuron agrees to give Oscient reasonable assistance in any such action, proceeding or claim at Oscient’s expense including, without limitation, to be joined as a party if necessary for the sole purpose of standing.

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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9.5 Global Trademarks and Global Trade Names. Upon and after the Effective Date, all Global Trademarks and Global Trade Names, with the exception of the Excluded Trademarks, shall be the exclusive property of Oscient and Oscient shall have sole right and authority for registering, maintaining and enforcing throughout the world the Global Trademarks and Global Tradenames (or to designate a representative to perform such actions) at its own expense and in its sole discretion, and Vicuron shall have no such rights or responsibilities.

9.6 Further Assistance. At the reasonable request of Oscient or its designee, Vicuron and its Affiliates agree to render all reasonable assistance and execute and do or cause to be executed and done all such documents, acts and things as may from time to time be necessary for Oscient or its designee to prosecute or perfect title in the Assigned Patents, Global Trademarks, and Global Tradenames in the Territory.

ARTICLE 10

TERM AND TERMINATION

10.1 Term. Except as otherwise provided herein, the term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Agreement, shall expire on a country by country basis ten (10) years after first commercial sale of a Product by Oscient in such country within the Territory. Upon termination of this Agreement pursuant to this Section 10.1, Oscient shall retain exclusive rights, title and interest in and to all Assigned Property that it owns as of the date of termination and may thereafter continue to sell Products in the Territory on a royalty-free basis.

10.2 Breach. In the event of a breach of this Agreement, subject to resolution of any dispute resolution proceedings brought under Section 13.2, the non-breaching Party may pursue remedies for damages or other relief available to it in law or equity.

10.3 Accrued Rights, Surviving Obligations. Termination of this Agreement shall not affect any accrued rights and remedies of either Party. Additionally, the terms of Articles 8 (“Confidentiality”), 11 (“Representations and Warranties”), 12 (“Indemnification”) and 13 (“Miscellaneous”), as well as Section 10.3 (Accrued Rights) of this Agreement shall survive any termination or expiration of this Agreement. In addition, Section 3.4 (“License”) of this Agreement shall survive any termination or expiration of this Agreement unless the Agreement is terminated by Vicuron for Oscient’s breach pursuant to Section 10.2

ARTICLE 11

REPRESENTATIONS AND WARRANTIES

11.1 Mutual Representations and Warranties. Each Party hereby represents and warrants:

(a) Corporate Power. Such Party is duly organized and validly existing under the laws of the state or country of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof.

(b) Due Authorization. Such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder.

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(c) Binding Agreement. This Agreement is a legal and valid obligation binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. Such Party has not, and during the term of the Agreement will not, grant any right to any Third Party with respect to its Patents or Know-how that would conflict with the rights granted to the other Party hereunder.

11.2 Other Representations by Vicuron. Vicuron further represents and warrants to Oscient that:

(a) As of the Effective Date, Vicuron has the full right, power and authority to sell, transfer, and assign all of its right, title and interest in the Assigned Property sold, transferred, and assigned or to be sold, transferred, and assigned to Oscient under this Agreement;

(b) Up until the transfer of the Assigned Property under Section 3.1, Vicuron is and has been the sole and exclusive owner, and in full possession and Control, of the Vicuron Patents (except for the Joint Patents and *****), Vicuron Know-how and Materials, Global Trademarks, Global Tradenames and the other Assigned Property;

(c) As of the Effective Date, except for *****, no Third Party has any right, title or interest in or to any of the Assigned Property or any Product, no portion of the Assigned Property is subject to or the subject of any agreement with any Third Party, including any government or governmental agency, the Assigned Property does not include or incorporate any Third Party technology, and the Assigned Property is free and clear of any liens, charges or encumbrances;

(d) As of the Effective Date, (i) Schedule 3.1(a) constitutes the complete list of all Patents that cover or are used in the manufacture of Bulk Compound or the discovery, evaluation, manufacture, sale, offer for sale, importation, and/or other use of Products or Vicuron Know-how and Materials, which Patents are owned or Controlled by Vicuron, and (ii) Schedule 3.1(c) constitutes the complete list of Global Trademarks and Global Tradenames;

(e) As of the Effective Date there exist (i) no claims, judgments or settlements against or owed by Vicuron relating to or affecting the Assigned Property, (ii) no pending (or to the best of its knowledge, threatened) written claims or litigation relating to or affecting the Assigned Property, (iii) no interferences or oppositions pending before any court or administrative office or agency relating to the Vicuron Patents, and (iv) the Vicuron Patents are existing and, to the best of Vicuron’s knowledge, are not invalid or unenforceable, in whole or in part;

(f) For each Vicuron Patent (except for the Joint Patents), in all material respects, (i) all necessary application, annuity, maintenance and renewal fees in connection with all patent and patent applications have been paid, (ii) all necessary documents and certificates in connection therewith have been filed with the relevant authority for the purpose of maintaining the patent registrations or applications, and (iii) no Vicuron Patent is undergoing cancellation, reexamination, termination or withdrawal proceedings; and

(g) As of the Effective Date, (i) Vicuron has not received any notices of infringement or any written communications relating in any way to a possible infringement with respect to the Compound or Products, and is not aware that the practice of the Vicuron Patents and Vicuron Know-how and Materials as contemplated by this Agreement will involve any infringement or unauthorized use of any intellectual property rights of any Third Party, and (ii) to the best of Vicuron’s knowledge, no Third Party has infringed any Assigned Property in the Territory.

11.3 Covenant by Vicuron. Vicuron hereby covenants that it shall use commercially reasonable efforts to assist Oscient in obtaining any third party license or other rights which have been granted to Vicuron

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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that will enable Oscient (or its licensees or other designees) to manufacture Bulk Compound, Compound or Product. Notwithstanding the foregoing, Oscient acknowledges that Vicuron will not make any payments to a third party or act as a guarantor (or a similar role) in order to satisfy its obligations under this Section 11.3.

11.4 Covenant by Oscient. In the event that royalties are payable for periods after the Effective Date to Former Partner by Vicuron pursuant to Section 15.9(c) of the License and Supply Agreement between Former Partner and Biosearch dated May 8, 1998 and the amendment dated June 1, 2001, then Oscient shall assume the full payment of such royalty which shall not exceed ***** percent (*****%) of net sales in as defined in such agreement, subject to Section 7.8(b) of this Agreement.

11.5 Disclaimer of Warranties. The Parties understand that the activities to be undertaken pursuant to this Agreement will involve technologies and products that have not been approved by any regulatory authority and that neither Party guarantees the safety or usefulness of the Products. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

11.6 Limitation. EXCEPT FOR THEIR RESPECTIVE OBLIGATIONS UNDER ARTICLE 12 ARISING OUT OF THIRD PARTY CLAIMS, SUITS OR DEMANDS, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY PUNITIVE, SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER.

ARTICLE 12

INDEMNIFICATION

12.1 Indemnification by Vicuron. Vicuron hereby agrees to indemnify, hold harmless and defend Oscient against any and all expenses, costs of defense (including without limitation attorneys’ fees, witness fees, damages, judgments, fines and amounts paid in settlement) and any amounts Oscient becomes legally obligated to pay because of any Third Party claim or claims against it to the extent that such claim or claims result from (i) Vicuron’s negligence, recklessness or willful misconduct; (ii) Vicuron’s breach or alleged breach of any representation or warranty by Vicuron or of any other provision of this Agreement; (iii) any claims of breach of the agreement dated May 8, 1998 between Biosearch and Former Partner which may be brought against Oscient; (iv) any claims from Third Parties, consultants, employees and contractors concerning Development activities prior to the effective date of the License and Supply Agreement, whether conducted on behalf of Vicuron, Former Partner or any other Third Party; or (v) the possession, manufacture, use, handling, storage, sale or other disposition of Bulk Compound or of products containing the Compound, or other Development or Commercialization activities, by Vicuron, predecessors, agents or licensees or sublicensees (other than Oscient) before the Effective Date; except to the extent such claim or claims arise from the negligence, recklessness or willful misconduct of Oscient or any breach of any representation or warranty of Oscient made pursuant to Section 11; provided that Oscient provides Vicuron with prompt notice of any such claim and the exclusive ability to defend (with the reasonable cooperation of Oscient) and settle any such claim. Any liability of Vicuron shall in no event extend to consequential damages.

12.2 Indemnification by Oscient. Oscient hereby agrees to indemnify, hold harmless and defend Vicuron against any and all expenses, costs of defense (including without limitation attorneys’ fees, witness fees, damages, judgments, fines and amounts paid in settlement) and any amounts Vicuron becomes legally obligated to pay because of any Third Party claim or claims against it to the extent that such claim or claims arise out of (i) Oscient’s or its Affiliates’ negligence, recklessness or willful misconduct; (ii) Oscient’s or its Affiliates’ breach or

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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alleged breach of any representation or warranty by Oscient or of any other provision of this Agreement; or (iii) the possession, final manufacture, use, sale or administration of Products by Oscient or its Affiliates or licensees; except to the extent such claim or claims arise from the negligence, recklessness or willful misconduct of Vicuron, its Affiliates, or its predecessors or any breach of any representation or warranty of Vicuron made pursuant to Section 11; provided that Vicuron provides Oscient with prompt notice of any such claim and the exclusive ability to defend (with the reasonable cooperation of Vicuron) or settle any such claim, and provided further that such indemnities shall not apply to losses resulting from Vicuron matters covered under Section 12.1 above. Any liability of Oscient shall in no event extend to consequential damages.

12.3 Mechanics. In the event that the parties cannot agree as to the application of Sections 12.1 and 12.2 above to any particular loss or claim, the parties may conduct separate defenses of such claim. Each Party further reserves the right to claim indemnity from the other in accordance with Sections 12.1 and 12.2 above upon resolution of the underlying claim, notwithstanding the provisions of Sections 12.1 and 12.2 above requiring the indemnified Party to tender to the indemnifying Party the exclusive ability to defend such claim or suit.

ARTICLE 13

MISCELLANEOUS

13.1 Assignment. Neither Party shall assign this Agreement or any of its rights or obligations under this Agreement to any other entity without the prior written consent of the other Party, and any assignment in contravention of the foregoing shall be null and void; provided, however, that either Party may assign this Agreement to any Affiliate or to any successor pursuant to a merger, reorganization, consolidation or sale of all or substantially all of the Assigned Property. This Agreement shall be binding upon, and shall inure to the benefit of, the legal successors and permitted assigns of the Parties.

13.2 Dispute Resolution.

(a) The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either Party’s rights and/or obligations hereunder or thereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 13.2 if and when a dispute arises under this Agreement.

Unless otherwise specifically recited in this Agreement, disputes among the Parties will be resolved by reference first to their respective executive officers designated below or their successors, for attempted resolution by good faith negotiations within fourteen (14) days after such notice is received. Said designated officers are as follows:

For Oscient:	Chief Executive Officer or designee
For Vicuron:	Jeffrey A. Meckler

In the event the designated executive officers are not able to resolve such dispute, either Party may at anytime after the fourteen (14) day period seek to resolve the dispute through the means provided in Section 13.2(b).

(b) Any claim or controversy arising out of or related to this Agreement or any breach hereof that is not resolved by the designated officers as provided in this Agreement shall be resolved solely and exclusively by

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final and binding arbitration (i) if started by Vicuron, in Boston, MA by a panel of three arbitrators appointed and acting according to the then existing rules of the JAMS/Endispute; and (ii) if started by Oscient, in New York, NY by a panel of three arbitrators appointed and acting according to the then existing rules of JAMS/Endispute. The arbitrator(s) selected shall have significant experience in the biotechnology or pharmaceutical industry, and shall apply the rules of law. Any arbitration proceeding conducted pursuant to this Section 13.2(b) shall be conducted in the English language. Any award made by such arbitrator(s) shall be final and binding upon the parties and a judgment of a court having jurisdiction may be entered on such award. Notwithstanding the foregoing, disputes regarding the validity, scope or enforceability of patents shall be submitted to a court of competent jurisdiction in the country where such patent has issued.

13.3 Force Majeure. Same as provided in Section 13.2 above, neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, earthquake, embargo, act of God, or any other similar cause beyond the control of the defaulting Party, provided that the Party claiming Force Majeure has exerted all reasonable efforts to avoid or remedy such Force Majeure.

13.4 Compliance with Law. Each Party hereto shall comply with all applicable laws, rules, ordinances, guidelines, consent decrees and regulations of any applicable federal, state or other governmental authority.

13.5 Export Law Compliance. Oscient understands and recognizes that the Product and other materials made available to it hereunder may be subject to the export administration regulations of the United States Department of Commerce and other United States government regulations related to the export of chemical compounds and medical devices.

13.6 Governing Law. This Agreement shall be governed by and construed according to the laws of the State of New York, USA.

13.7 Entire Agreement. Except as set forth herein, this Agreement, including all Exhibits attached hereto, and all documents delivered concurrently herewith, set forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and supersede and terminate all prior agreements and understanding between the Parties. No subsequent alteration, amendment, change or addition to this Agreement, shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties.

13.8 Relationship of the Parties. Nothing hereunder shall be deemed to authorize either Party to act for, represent or bind the other except as expressly provided in this Agreement.

13.9 No Third Party Beneficiaries. Nothing in this Agreement, express or implied, shall create a third party beneficiary relationship or otherwise confer any benefit, entitlement, right or remedy upon any person or entity other than the parties hereto.

13.10 Notices. All notices hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), telexed, mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof.

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If to Pfizer,
addressed to:	Vicuron Pharmaceuticals Inc.
	c/o Pfizer Inc
	235 East 42nd Street
	New York, NY 10017
	Attention:	Jeffrey A. Meckler
	Telephone:	212 733-1945
	Telecopy:	212 716-9151
	With a copy to:	Jeffrey Kindler, Esq.
		Vice Chairman and General Counsel
	Telecopy:	212 808-8924
If to Oscient, addressed to:	Oscient Pharmaceuticals Corporation
	1000 Winter Street, Suite 2200
	Waltham, MA 02451
	Attention:	Legal Department
	Telephone:	781-398-2300
	Telecopy:	781-398-2530

13.11 Waiver. Except as specifically provided for herein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such Party’s rights or remedies provided in this Agreement.

13.12 Severability. If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable, then (i) the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (ii) the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.

13.13 Official Language. The official text of this Agreement and any appendices, exhibits and schedules hereto, or any notice given or accounts or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language.

13.14 Headings. The Section and paragraph headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections or paragraphs.

13.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their proper officers as of the Effective Date.

OSCIENT PHARMACEUTICALS CORPORATION		VICURON PHARMACEUTICALS, INC.
By:	/s/ Steven M. Rauscher	By:	/s/ Peter L. Garrambone, Jr.
	Steven M. Rauscher		Peter L. Garrambone, Jr.
Title:	President & Chief Executive Officer	Title:	President

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Exhibit I

Bulk Compound Specifications

Test	Specification	Test Method
Appearance	*****	*****
Identification	*****	*****
pH of water solution	*****	*****
Clarity of solution	*****	*****
Sulphated ash	*****	*****
Heavy metals	*****	*****
Chloride ion	*****	*****
Water (KF)	*****	*****
Residual solvents:	*****
acetone	*****
methanol	*****
Microbiological assay	*****	*****
HPLC assay	*****	*****
UV assay	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

Exhibit II

A S S I G N M E N T

For valuable consideration, the receipt and adequacy of which is hereby acknowledged, VICURON PHARMACEUTICALS INC. a corporation organized and existing under the laws of the State of Delaware, United States of America, and having a place of business at 455 South Gulph Road, King of Prussia, Pennsylvania, United States of America, hereby sells, assigns and transfers unto OSCIENT PHARMACEUTICALS CORPORATION a corporation organized and existing under the laws of the Commonwealth of Massachusetts, United States of America, and having a place of business at 1000 Winter Street, Suite 2200, Waltham, Massachusetts, United States of America, its entire right, title and interest in the United States of America, in and to all inventions, whether joint or sole, disclosed in the following patent applications of the United States of America:

*****

and to all Letters patent granted in the United States of America on the foregoing applications; and in all related patent applications including, divisions, reissues, substitutions, continuations, continuations-in-part, re-examination applications and extensions thereof and all foreign counterpart patents and patent applications filed under the Paris Convention for the Protection of Industrial Property, in all countries of the world including, but not limited to, the patents and patent applications listed in the attached Schedule A and all priority rights thereof that are or may be predicated upon or arise from said assigned patents and patent applications.

Signed and witnessed this      day of                     , 2006, at                     .

________________________________________________________________________

_________________________________________

Title

In the presence of:

_________________________________________

_________________________________________

(Typed or Printed Name of Witness)

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

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SCHEDULE A – VICURON PATENTS

*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****
*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****
*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

2

Exhibit III

Trademark Assignment

ASSIGNMENT OF UNITED STATES AND FOREIGN

TRADEMARKS AND APPLICATIONS

WHEREAS, Vicuron Pharmaceuticals, Inc., a corporation organized under the laws of Delaware, located and doing business at 455 South Gulph Road, Suite 305, King of Prussia, Pennsylvania, 19406, (hereinafter “Assignor”) is the owner of the trademarks and trademark applications and registrations in the United States and in other countries identified in the table below (hereinafter “Trademarks and Applications”);

WHEREAS, Oscient Pharmaceuticals Corporation, a corporation organized under the laws of the Commonwealth of Massachusetts, located and doing business at 1000 Winter Street, Suite 2200, Waltham, Massachusetts, 02451, (hereinafter “Assignee”), desires to acquire the entire right, title, and interest in and to the Trademarks and Applications, together with the portion of the business to which the marks pertain and the goodwill of the business connected with the trademarks identified in the table below; and

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, Assignor hereby sells, assigns, transfers and sets over to the Assignee, the entire right, title, interest in and to the Trademarks and Applications, together with the portion of the ongoing and existing business to which the pending marks pertain, and the goodwill of the business connected with the trademarks identified in the table below, the same to be held and enjoyed by Assignee, its successors, assigns and other legal representatives.

Assignor further assigns to Assignee all rights to sue for and receive all damages accruing from past infringements of the trademarks herein assigned.

Assignee hereby accepts the transfer of rights, title and interest in and to the Trademarks and Applications identified in the table below from Assignor as herein described and defined.

Mark Country Filing Date Serial No. Status

1

This Assignment shall be binding upon the parties, their successors and/or assigns and all others acting by, through, with or under their direction, and all those in privity therewith.

VICURON PHARMACEUTICALS, INC.

By

Name

Title

Date

OSCIENT PHARMACEUTICALS CORPORATION

By

Name

Title

Date

2

Schedule 1.7

Derivative Patents

*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****
*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

Schedule 1.9

Excluded Trademarks

Any and all rights to the name ERAXIS worldwide are excluded, including the following applications:

Mark	Country	Filing Date	Serial No.	Status
Eraxis	US	4/3/2003	78/233,491	Allowed – Intent to use
Eraxis	CTM	4/4/2003	003121258	Pending – Published

SCHEDULE 3.1(a) – VICURON PATENTS

*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****
*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****
*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****
*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****
*****
Country	Application No.	Filing Date (date of entry)	Grant No.	Grant Date
*****	*****	*****	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

1

Schedule 3.1(c)

Global Trademarks and Global Tradenames

Mark	Country	Filing Date	Serial No.	Status
*****	*****	*****	*****	*****

* Confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

EX-31.1

Exhibit 31.1

OSCIENT PHARMACEUTICALS CORPORATION

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven M. Rauscher, President and Chief Executive Officer of Oscient Pharmaceuticals Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oscient Pharmaceuticals Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/    STEVEN M. RAUSCHER
	Steven M. Rauscher President and Chief Executive Officer
	Dated: May 10, 2006

EX-31.2

Exhibit 31.2

OSCIENT PHARMACEUTICALS CORPORATION

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen Cohen, Senior Vice President and Chief Financial Officer of Oscient Pharmaceuticals Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oscient Pharmaceuticals Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/    STEPHEN COHEN
	Stephen Cohen Senior Vice President and Chief Financial Officer
	Dated: May 10, 2006

EX-32.1

Exhibit 32.1

OSCIENT PHARMACEUTICALS CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the report of Oscient Pharmaceuticals Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2006 as filed with the Securities and Exchange Commission (the “Report”), I, Steven M. Rauscher, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/    STEVEN M. RAUSCHER
	Steven M. Rauscher President and Chief Executive Officer
	Dated: May 10, 2006

EX-32.2

Exhibit 32.2

OSCIENT PHARMACEUTICALS CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the report of Oscient Pharmaceuticals Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2006 as filed with the Securities and Exchange Commission (the “Report”), I, Stephen Cohen, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/    STEPHEN COHEN
	Stephen Cohen Senior Vice President and Chief Financial Officer
	Dated: May 10, 2006